The saddening news of the demise of British Home Stores (BHS), which echoes the likes of Woolworths, has left the retailers’ debt at an estimated £1.3 billion with a reported £571 million ‘hole’ in the final salary pension scheme.
Pension scheme deficits are not uncommon as funding calculations are based on gilt yields – the interest rates paid by the UK government on its bonds. Gilt yields are currently at exceptional levels due to quantitative easing measures being taken to revitalise the UK economy.
So, where does this leave those who have invested in a BHS final salary pension scheme?
The pension scheme will fall into the rescue vehicle known as the Pension Protection Fund (PPF). The funding for the PPF comes from all remaining final salary schemes, and members will receive their pension in part as they continue to meet payment obligations for roughly 20,000 pension holders. This will mean that the scheme will provide 90% of the original pension, subject to a current annual limit of £33,678.
Until gilt yields increase significantly this vicious spiral of under-resourced employers funding long-term liabilities from today’s revenue will remain in place.
If you have concerns about your current or past pension entitlements, please contact us. We would be pleased to provide advice.