Anna Rogers, Senior Partner at Arc, said: “We are pleased to have established that this is an option for schemes with the right fact pattern. It’s been a slow process, and TPR’s requirements are stringent, but the precedent will be helpful to other older schemes with a surplus that is trapped even on winding-up.”
The factors that TPR considered are outlined in the Determination Notice, published today by the regulator. A step-by-step process is also provided, which clarifies the conditions allowing such orders to be made.
Background
The Littlewoods Pensions Scheme is a defined benefit (DB) scheme dating back to 1947. At its peak, there were over 20,000 members with pensions liabilities approaching £2 billion. The scheme closed to new members in 2001, but pensions are expected to continue being paid for the next 50 years. The membership in May 2023 was around 10,000.
During the early 2000’s, the scheme – like many other DB schemes at the time – was in deficit. At its worst this shortfall approached £400 million. It was a difficult market for retailers, and the outlook for the scheme was gloomy, with the prospect of ending up in the Pension Protection Fund and seeing benefits for members cut back.
Recovery and achieving buy-in
As a result largely of smart investment decisions by the Trustee and additional, voluntary financial contributions from the Employer, this deficit was overcome. The scheme achieved such a solid financial position that, by 2020, the Trustee had been able to transfer all future liabilities to two insurance companies by means of ‘buy-ins’ at a cost of around £1.7 billion.
The buy-ins secured the payment of all future pensions in full. They also eliminated the dependency upon the fortunes of the Employer and any future vagaries of financial markets.
Buyout and surplus
The Employer, Littlewoods, paid an additional £32.5m in total over and above its legal obligations. After securing all the benefits, and meeting the costs of reaching buyout and winding-up, assets of approximately £16m are expected to be left in the scheme. The Trustee took the view that this surplus should be returned to the Employer. Because of historic restrictions in the scheme rules, the Trustee approached TPR for assistance. The Regulator has recently made an order authorising the Trustee to modify the rules to allow the return of this surplus to the Employer.
The Trustee has now begun the regulatory process of notifying the former pension scheme members. This process is expected to take a minimum of six months. Once complete, the refund of surplus can be paid.
This news follows the publication last week of the Government’s response to its Options for Defined Benefit Schemes consultation, which sets out plans to lift restrictions on how scheme surpluses are used, including changes to the threshold at which trustees are able to return surplus to the sponsoring employer.
Colin Thwaite, Chairman of the Trustee of the Littlewoods Pensions Scheme, said: “Littlewoods has provided generous financial support to our scheme over recent years, and I’m delighted that we have been able to secure the pensions for all our members in full. We are grateful to The Pensions Regulator for enabling us to pay the unused assets back to Littlewoods so that we can now finish winding the scheme up. Guaranteeing our pension obligations has been our goal for a long time and it is a testament to the quality of our advisers, and the longstanding support and collaboration with Littlewoods and its shareholders, that we have achieved it.”
Legal advice throughout the process was provided by Arc Pensions Law.
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