Merryn's Blog

Who’s really to blame for the BHS pension black hole

It might not look good for Philip Green to take £400m in dividends while BHS and its pension scheme goes under. But he couldn’t have foreseen the deficit, and isn’t to blame, says Merryn Somerset Webb.


OK, my final post on BHS (for now, anyway). I said in the posts below that 1) it isn't a given that firms with pension fund deficits should cancel their dividend payments to shareholders and 2) it wasn't the pension fund deficit that brought down BHS it was a combo of the bonkers level of debt it was carrying and the crappy market it was operating in.

Read those two, and you might think that there is no reason for Philip Green to have to stump up a pile of what he will now consider his (or his wife's) cash to help out the Pension Protection Fund (which has to take on the BHS pension fund liabilities). But it isn't that simple if it were would Green have already offered to contribute £80m to the rescue fund?

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

Clearly, he recognises that hanging out on super yachts in Monaco while appearing in the Sunday Times rich list with a fortune of £3.2bn isn't a good look when a company he took £400m-odd out of is on its way into administration.

No wonder the regulator has announced an investigation. Will it find anything? I have a feeling that it won't that unless it can prove that Green's sale and leaseback deals and the like were underhand ways of withdrawing cash from BHS, it will end up taking the £80m and being reasonably happy with that.

Advertisement - Article continues below

When BHS last paid out a dividend in 2004, UK interest rates were 4.75% and rising (to 5.75% by mid-2007). There was no thought absolutely no thought at all that rates might ever fall to 0.5% and stay there. None.

So there would have been no thought given to the pension fund either (remember that the trustees could have complained to the regulator at any time if they felt at risk they didn't).

Green's debt might have destroyed BHS which is really bad but I can't see how he can be accused of intentionally neglecting his duties to the pension fund on the basis that when he paid out the dividend he probably didn't think he had any. We can't surely get into the business of making shareholders pay back dividends if things go wrong in the years after they have banked the cash?

That said, politics works on outrage these days, so the vilification of Green over the pension fund might be something for all CEOs and owners to keep an eye on: super low interest rates have delivered the death blow to our defined-benefit pension system, but when they collapse it isn't the Bank of England that will get the blame (and the investigations). It will be the corporate fat cats and of course the pension trustees who everyone will say should have been tougher on them earlier.

It's all just one more way monetary madness is destroying our world.




How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Stock markets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019

Beyond the Brexit talk, the British economy isn’t doing too badly

The political Brexit pantomime aside, Britain is in pretty good shape. With near-record employment, strong wage growth and modest inflation, there is …
17 Oct 2019
Personal finance

Companies cut back on their pensions bills

Britvic is the latest firm hoping a cheaper inflation index will cut pension costs. David Prosser reports.
28 Aug 2019

Most Popular


Thousands of pensioners are set to lose £3,500 a year

Around 11,000 pensioners in receipt of the “adult dependants’ addition” will lose up to £70 a week from their state pension.
27 Jan 2020
Investment strategy

The coronavirus is scary – but it's irrelevant to your investments

The spread of the coronavirus is causing alarm around the world. And, while it could be a serious short-term threat to human health, it’s not somethin…
24 Jan 2020

Want to make money in 2020? Gold and silver are looking like a good bet

If you want to make money from investing, says Dominic Frisby, it’s simple: find a bull market and go long. And in 2020 gold and silver are in a bull …
22 Jan 2020

How Putin's cronyism is strangling Russia

Russia's vast population and wealth of resources should be boosting growth. There’s one man holding it back: Vladimir Putin
27 Jan 2020