The Pensions Regulator has approved a £255 million settlement between Coats Group and its pension trustees, protecting about 24,000 members in a deal that piles pressure on Sir Philip Green over BHS.
The agreement with the threadmaker follows an investigation launched in 2013 which halted hundreds of millions of pounds being paid to shareholders and is the biggest payment officials have clawed back for pensioners.
Yesterday experts said that it proved that the regulator could show its teeth and strengthened its hand in talks with Sir Philip about plugging the £571 million hole in the BHS pension scheme.
John Ralfe, who advised the Commons’ work and pensions committee in its investigation into the collapse of BHS, said that it was the most important settlement agreed by the regulator. “There are clear parallels with BHS. The parent company [Taveta] has no legal obligation for the subsidiary’s pension scheme and there is no obvious breach of the rules, but the regulator has been tough and got a large contribution from the parent.”
The agreement between Coats and the trustees covers two of the group’s three defined benefit schemes, Coats and Brunel, which had a combined estimated deficit of £480 million as of 2015, and protects about 90 per cent of the total membership.
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Under the settlement Coats has agreed to make upfront payments of £255.5 million into the two schemes and annual deficit contributions of £14.5 million. The schemes will also have access to sponsor support from Coats and a guarantee over liabilities.
Negotiations continue over the third scheme, Staveley Industries, which covers 3,700 members and had an estimated deficit of £85 million three years ago, and remains under investigation.
Coats has offered an upfront payment of £74 million and annual contributions of £3 million, but trustees are holding out for more.
Michael Chatterton, speaking on behalf of Staveley trustees last night, said: “The trustees have told the company that they consider that it can and should do more to improve the security of the members of the Staveley scheme.”
Nicola Parish, of the Pensions Regulator, said that the settlement showed officials “can and will use our existing powers against a solvent employer if that is the right thing to do”.
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She said that it was a fine example of how all sides “can work together to achieve a good outcome for members without the need to formally enforce our powers through the determinations panel,” she said.
In the case of BHS the regulator issued warning notices last month, therefore triggering formal legal action, but has held open the door to reaching a settlement with Sir Philip.
The regulator raised concerns about funding of the Coats pension schemes in June 2012, underlining the lengthy process. Coats, formerly Guinness Peat Group, had sold its shares in about 50 businesses between 2011 and 2013, leaving Coats as the only operating business, and had returned £162 million to investors before agreeing to halt payments when the regulator intervened.
Mike Clasper, chairman of Coats, said that it was a “good outcome for all parties involved”. “We remain committed to fulfilling our continuing obligations to our pension schemes and their members and concluding a settlement for the Staveley scheme,” he said.
Shares in Coats rallied 9.8 per cent to 50½p, valuing the company at about £712 million. Analysts at Peel Hunt, house broker, said that the cash injection was in line with expectations but annual contributions were lower.
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It was only 17th time the regulator has issued a warning notice and tops the £184 million settlement reached over the collapse of Lehman Brothers.