Pension Shortfalls Will Probably Result in Loss of Pension Fund
With the sales and inevitable sales of British Steel, Mr Kipling, and BHS the inevitability of loss of pension fund exists. These companies have operated pension schemes for decades and all three, like many other British companies are operating a pension deficit.
As the sales of the businesses go through the employees whose jobs are at risk will no doubt see a loss of pension fund as the business processes come to fruition.
Tata Steel has put its British arm of the steel works up for sale. Currently, it has a deficit of around £90 million and Tata has stated that it will contribute £160 million to the fund over the next three years.
The sale could see that commitment reneged, leaving a potential shortfall in the fund unplugged. Pension trustees believed that should this happen the deficient will quickly rise to £966 million. Although chairman of the trustees, Alan Johnston has stated that, “if the scheme was wound up Tata Steel would be required to pay contributions’ to cover the shortfall,” there is a strong possibility this will not happen, leaving the Pension Protection Fund (PPF) to pick up the pieces.
In real terms hundreds possibly thousands of pre retirement employees could lose their pensions or receive only a limited amount.
Premier Foods (Mr Kipling)
Premier Foods has recently been valued at £1.5bn with American giant McCormick interested in acquiring the company. They have asked Premier to ‘engage fully’ or open its books. What they want to know is the pension commitments of Premier, who performed a rights issue three years ago showing that they had a deficit of around £800 million. Currently, it is believed to be in the region of £390 million.
BHS’ pension deficit is £571 million. The company was recently sold by former chairman Sir Phillip Green to little known investors for £1. Due to high street competition the company is in deep water.
The pension’s regulator, a watchdog organisation that monitors pension schemes is in talks with Green, the trustees and the PPF.
The PPF are fully expected to take control. Should that happen, people who have not yet retired will lose 10% of their contributions at least, and further annual pension rises will be capped at 2.5%. In real terms, if inflation rises above 2.5%, the value of the pension will not rise to meet it. This will affect thousands more employees of BHS.
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It is worth noting that other large employers such as British Airways, Shell, and RBS also have large pension deficits.
Source: Daily Mail