Wilko Collapse and the £50m Pension Black Hole

[DSLiverpool]

Sadly it looks like management incompetence and nest feathering of the highest order has killed this great institution.

Clever people - how can the directors take out money legally leaving the pension in arrears and what consequences might the directors now face.

Surely it’s not that easy to screw everyone over?

[Ham_and_Jam]

DSLiverpool said:

how can the directors take out money legally leaving the pension in arrears and what consequences might the directors now face.

I don’t think they legally can. However what consequences they face is another question. Quite often financial decisions made by unscrupulous directors are done based on the massive gains versus the small punitive repercussions. See also the recent illegal P&O dismissals for similar decision making.

[DaveA8]

I know nothing of the specifics here but if there are retained earnings then these can be distributed
As for pension black hole, this is likely a result of low returns and members living longer, it’s sad but not necessarily the owners or directors fault

[Countdown]

DSLiverpool said:

Sadly it looks like management incompetence and nest feathering of the highest order has killed this great institution.

Clever people - how can the directors take out money legally leaving the pension in arrears and what consequences might the directors now face.

Surely it’s not that easy to screw everyone over?

The Actuaries for the Scheme should have drawn up a Deficit Repayment Plan. The Trustees of the Plan should have agreed this with the Employer. The Trustees should also have taken into account the strength of the Employer Covenant (ie how robust or strong Wilko's business was). After taking into account the deficit and the covenant the Trustees should have agreed the payments that Wilko were required to make and this would have been signed off by the Actuaries.

Assuming that Wilko were making the agreed payments into the Fund there is nothing to stop them extracting any cash from the Company.

[skwdenyer]

DaveA8 said:

I know nothing of the specifics here but if there are retained earnings then these can be distributed
As for pension black hole, this is likely a result of low returns and members living longer, it’s sad but not necessarily the owners or directors fault

The problem in this modern world is that “retained earnings” are seldom that. They’re an accounting and taxation fiction. Many companies have to borrow in order to distribute these “retained” earnings.

[DaveA8]

skwdenyer said:

DaveA8 said:

I know nothing of the specifics here but if there are retained earnings then these can be distributed
As for pension black hole, this is likely a result of low returns and members living longer, it’s sad but not necessarily the owners or directors fault

The problem in this modern world is that “retained earnings” are seldom that. They’re an accounting and taxation fiction. Many companies have to borrow in order to distribute these “retained” earnings.

Absolutely agree, we came across a construction company who approached us about buying some specialist fabricated product.
On paper they had £20m of retained earnings but in reality it was part debtor book and mostly work in progress/ stock
The went bust in May owing £30m to unsecured creditors
The problem is even more prevalent where these Employee Ownership Trusts buy the business, the supply chain becomes a sort of lender.
The WIP figures for anything construction related are meaningless, I recall a contractor who owed us money but we got it down a bit before they went bust had recently issued their accounts, nearly £2m of WIP finally realised £5k in liquidation

[Simpo Two]

And I thought pension fund raiding had finished with Maxwell. Or was it Philip Green? But anyway, I fail to understand how it is allowed to continue to happen.

[monkfish1]

Simpo Two said:

And I thought pension fund raiding had finished with Maxwell. Or was it Philip Green? But anyway, I fail to understand how it is allowed to continue to happen.

But who would stop it? Those benefiting are running the show a lot of the time.

[Countdown]

Simpo Two said:

And I thought pension fund raiding had finished with Maxwell. Or was it Philip Green? But anyway, I fail to understand how it is allowed to continue to happen.

They haven’t raided the pension fund.

[skwdenyer]

Countdown said:

Simpo Two said:

And I thought pension fund raiding had finished with Maxwell. Or was it Philip Green? But anyway, I fail to understand how it is allowed to continue to happen.

They haven’t raided the pension fund.

The "hole" in a pension fund is based on rolling calculations of future liabilities. Those can - and do - go up and down with time. The trustees tell management what shortfalls are looking like, and work out how to fill the hole. If there's a surplus in the future, contributions can go back down again.

According to this https://www.pensionsage.com/pa/DB-trustees-urged-t... there was a £16m hole. However, on a "buy out basis" the hole is £50m.

I'm not an expert, but my read is that £16m is the current deficit (on the basis of what it would take to make the fund self-sufficient on current projections), whilst £50m is how much money they would need to ‘buy out’ the scheme with an insurance company to provide the promised benefits (an insurer will work on a lower return and, of course, build in profit).

Read more here: https://www.thepensionsregulator.gov.uk/-/media/th...

[Simpo Two]

skwdenyer said:

Countdown said:

They haven’t raided the pension fund.

The "hole" in a pension fund is based on rolling calculations of future liabilities

Fair point, I just assumed the worst.

So, liabilities exceed the dosh to pay them. Same reason the State pension age went up.

[Countdown]

For the active/deferred members they will get picked up by the PPF "lifeboat" which IIRC is 90% of their pension entitlement up to about £40k.