UK Pension Regulator Secures $446 Million Settlement for Ex-BHS Staff

The UK’s Pensions Regulator (TPR) has secured a cash settlement worth up to £363 million ($446 million) with the former owner of the now-defunct British Home Stores (BHS) department store chain. The settlement will provide thousands of ex-BHS employees the starting pension they were originally promised.

Last June, BHS announced it would be shutting down operations, and by late August, it had closed all of its stores after 88 years in business.

As part of the agreement, which has the blessing of the trustees of the two BHS pension plans, BHS owner Sir Philip Green will provide funding for a new independent pension plan. The plan gives members the option of the same starting pension as they were originally promised by BHS, and higher benefits than they would get from the Pension Protection Fund (PPF). TPR is the regulator of work-based pension schemes in the UK.

“The agreement we have reached with Sir Philip Green represents a strong outcome for the members of the BHS pension schemes,” said TPR chief executive Lesley Titcomb in a statement. “It takes account of the interests of both pensioners and the PPF, and brings a welcome level of certainty to present and future pensioners.”

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The board of the new pension plan will be comprised of three professional independent trustees. Members of the current BHS plans will have three potential options: transfer to the new plan, opt for a lump sum payment if eligible, or remain in their current plan and receive benefits from the PPF.

The lump sum payment option will be available to members with small pots of up to £18,000 ($22,100) in total value. Those who choose not to take a lump sum and transfer to the new pension plan will be entitled to the same benefit structure as all other members. The new plan will also be eligible for the PPF.

“This settlement for the BHS pension schemes … relieves the PPF’s levy payers of the cost of meeting the initially reported shortfall,” said Alan Rubenstein, chief executive of the PPF. “The Pensions Regulator will be monitoring the new scheme and members will be protected by the PPF.”

The settlement funds are being held in segregated bank accounts: £343 million has been placed in an escrow account to fund the new plan, and up to an additional £20 million is being held in other accounts to cover expenses, and the costs of implementing the member options and the new plan.

“We are confident that the agreement we have reached with Sir Philip represents a good outcome for current and future BHS pensioners,” said Nicola Parish, Executive Director of Front Line Regulation.

TPR’s anti-avoidance enforcement action against Green, Taveta Investments Limited, and Taveta Investments (No. 2) Limited, will now cease, the regulator said.

“I would like to apologize to the BHS pensioners for this last year of uncertainty, which was clearly never the intention when the business was sold in March 2015,” said Green in a statement. “I hope that this solution puts their minds at rest and closes this sorry chapter for them.”

By Michael Katz

Could use a descriptor as to who they are and why they are in article

Thomson Reuters and the CME Group, which have been providing the price fixing since 2014, said they will continue to operate and administer the auction until the LMBA can find new providers.

The two major firms that oversee the daily silver fixing for the London Bullion Market Association (LBMA) are unexpectedly resigning from their appointments after the passage of a new European benchmark regulation has prompted a review of the group’s silver price-fixing administration arrangements.

Thomson Reuters and CME Group, which each provide the daily service to the LBMA, announced their resignations last week. No immediate reason was provided, but new legislations scheduled to go into effect in January 2018 cover firm contribution and use a wide set of benchmarks, according to the London-based Financial Conduct Authority.

The daily silver and gold price fixing are established procedures that set prices for billions of dollars in jewelry and mining activities, yet the close scrutiny price benchmarking has received in recent years, and in some cases, accompanying scandals, leaves more downside reputational and legal liability than upside appreciation. Ross Norman , an executive at the London-based Sharps Pixley Ltd., said there was “very modest commercial reward” for firms providing daily benchmark supervision of the electronic auction price setting arrangement.

Thomson Reuters and the CME Group, which have been providing the price fixing since 2014, said they will continue to operate and administer the auction until the LMBA can find new providers.

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Price Fixing Problems Found

The daily silver and gold price fixing has been used for years to set commercial prices, as well as to hedge inventories. However, recent scandals have focused attention on market participants and market manipulation, and resulted in class-action lawsuits against some banks. In March 2014, a New York speculator filed a lawsuit alleging that Societe Generale SA, Deutsche Bank AG, Barclays Plc, Bank of Nova Scotia and HSBC Holdings Plc., conspired to manipulate the price benchmark. These banks oversee the London gold fix. In 2016, Deutsche Bank decided to settle US lawsuits for conspiring to manipulate the gold and silver markets.

The gold price “fix” is set twice each business day, at 10:30 a.m. and 3 p.m. London time, and sets the transaction price for a large pool of purchase and sale orders.

While, the banks cited in the lawsuit said the charges were without merit, an earlier academic paper found irregularities in the price-fixing process. This was followed by a story in Bloomberg, which said the price fix could have been manipulated “for a decade.”

Rosa Abrantes-Metz, managing director of Global Economics Group, adjunct associate professor at the Stern School of Business at New York University, and a co-author of papers on price fixing involving gold, silver and LIBOR prices, said that “with respect to gold and silver, the structure of these fixings and the empirical evidence were very telling in supporting collusion and manipulation.”

In a video, Abrantes-Metz said “I have looked into silver at the London Silver Fixing, as I did for gold, and the results were fairly similar, but I have also more recently started to look into the CME futures settlement prices for silver, and I found several unusual patterns. I find that prices move in opposite directions from the rest of the market returns very often, particularly while silver prices were moving upwards. I also find very drastic increases in volume traded in the space of one minute, very often the largest of the day by far, and very sharp price movements.”

A Historical Evolution

The London silver fixing began in 1897 when a small group of silver bullion dealers, including the Fixing Members, met in London (initially in-person and later via teleconference) to set the daily benchmark price of silver. Fixing Members, acting through London Silver Market Fixing, Ltd., met over a secure conference call line at noon London time every business day to “fix” the price of physical silver, according to an anti-trust litigation lawsuit involving the silver price fixing.

The Silver Fixing, which was usually done in less than 10 minutes, was conducted through a private “Walrasian” auction, a type of simultaneous auction where each agent calculates its demand for the good at every possible price and submits this to an auctioneer. The price is then set so that the total demand across all agents equals the total amount of the commodity being considered.

At the outset of the price fixing process, the “chairman” of the auction (a position that rotated among the Fixing Members) would announce the opening price, reflecting the current “spot price” of silver. Each of the Fixing Members would then declare how many bars of silver they wished to buy or sell at the opening price based on the net supply or demand for spot silver on their order books (reflecting both client orders and proprietary trading orders).

This process changed on April 29, 2014, when Deutsche Bank left its position as a Fixing Member over regulatory concerns. This led to the demise of the Silver Fixing and the creation of the “London Silver Price.” The new pricing system introduced an electronic trading system, instead of a private telephone call, but otherwise retains an “auction-style process” to determine the Fix Price. Two of the former Fixing Members, HSBC and Bank of Nova Scotia, are members of the London Silver Fixing panel. UBS is accredited to participate in the London Silver Price but has never been a member of the Fixing Panel.

By Chuck Epstein