BHS

Baroness Drake Excerpts

Monday 6th June 2016 Lords Chamber

[Baroness Neville-Rolfe]

I thank my noble friend. I am not familiar with the earlier legislation, which has of course been replaced, but I can say that we have set up, in good time, this Insolvency Service inquiry. We are hoping to get the results from the administrators around the end of July. There are powers to disqualify directors and any evidence of criminal behaviour can be referred to the relevant investigatory authority for investigation and, potentially, prosecution. We have to do the right things that we can do under the existing powers, and we are pushing ahead with that. Then, obviously, we need to reflect on whether or not those powers are the right ones. I should have said earlier that the funds made available for redundancy will come out of the Government budget rather than the administrator’s.

[Baroness Drake (Lab)]

My Lords, I declare my interest as a trustee of the Santander and Telefonica pension schemes. I welcome the Government’s commitment to assisting the workers and their families who have been impacted by the events of BHS and Austin Reed. For them, this is a real and human story. Job loss is always stressful, people are anxious and families are affected, so anything the Government can do to find these people new employment has to be a priority. As we get into the investigation of BHS, several thousand people will be anxiously wanting to know how and when they can get into employment and fund their mortgages, children, homes and everything else.

I am conscious that there are various bodies investigating the circumstances surrounding the collapse of BHS and the implications for its pension scheme. Therefore, I do not want to express an opinion on the role of any player but I will ask the Minister two specific questions. The rules of the DB pension regulatory system were written in the context of the view taken of risk at that time. Regulation can never remove all risk but the economic and commercial circumstances have changed. We live in a post-2008 world where assumptions about growth, interest rates and investment returns are more restrained, and companies frequently change hands or corporate restructurings occur. These can happen quite quickly, so the assessment of an employer covenant backing a given pension fund has to be frequently monitored and reviewed. It cannot be done and simply put on the shelf. I know from personal experience that things can move very quickly, and the circumstances that you find your scheme in can be materially quite different. Will the Government consider reviewing whether the regulator’s powers remain fully fit for purpose and are still sufficient to allow it to address threats to the funding of DB pension schemes?

The BHS events also confirm what I already knew as a trustee: that trustees have little or no powers to intervene in a corporate event, even when they anticipate it will weaken the employer covenant significantly or prejudice the scheme’s funding level. Are the Government considering a review of the sufficiency of trustees’ powers where a corporate event significantly weakens the position of the pension scheme? At the moment there is very little they can do other than report to the regulator.

[Baroness Neville-Rolfe]

I am grateful for the noble Baroness’s thoughtful comments. I, too, used to be a pensions trustee and my experience was that you lived in constant fright of doing the wrong thing and that you really did try very hard to be on top of management and to make sure your responsibilities were fulfilled—otherwise the riot act was, rightly, read to you by pension schemes’ legal advisers. You also tried to look ahead, and any suggestion of M&A was always a good opportunity to try to make sure that the pension fund always got topped up. I know that the Pensions Regulator has spent a lot of time trying to train the remaining defined benefit pension schemes to do things well.

We need to see the results of the insolvency and the Pensions Regulator investigation to see where we get to. Obviously, these kinds of arrangements are kept under review. I take the point, also made by the noble Lord, Lord Mendelsohn, that circumstances are a bit different now. Trustees have strong powers, and if you were to look at the whole situation, you would need to look at that as well. These defined benefit schemes are of course, in a way, a good thing, because the employer provides pensions for the workers so that they do not have to have state pensions. These schemes, which have now largely disappeared, can be extremely favourable for those who have them, giving them security, making them loyal to the employer and so on. It is a difficult area and I am in danger of straying into the territory of the Pensions Minister.