TPR forces Coates to pay £255m in anti-avoidance case

Coats Group is being forced to pay £255m up front onto two of its pension schemes following anti-avoidance action  by the Pensions Regulator (TPR).

Nicola Parish, TPRIn 2013 and 2014, TPR issued warning notices (WNs) setting out the case for exercising its Financial Support Direction (FSD) power in relation to three defined benefit (DB) schemes sponsored by companies within the Coats corporate group.

Pending the outcome of TPR’s case, Coats agreed to suspend intended payments to shareholders of the proceeds from the sale of its former investments.

TPR has now secured a settlement with Coats for two of the schemes covering approximately 90 per cent of the total membership of 24,000, and will discontinue its anti-avoidance action in respect of those two schemes.

The schemes covered by the settlement are the Coats Pension Plan (CPP) and the Brunel Holdings Pension Scheme (BHPS).The settlement will secure for scheme members all of the available cash following the sale of Coats’ former investments.

The main points of the agreed proposal are:

  • Upfront payments totalling £255.5m into the two schemes (inclusive of the agreed Recovery Plan contributions paid to the BHPS since 1 January 2016). The allocation of these funds will ensure the two schemes are left in a similar funding position.
  • A change in the statutory employer for the two schemes to Coats Limited, representing an improvement in the covenant support for the schemes.
  • A full guarantee from Coats of the liabilities of the two schemes.

A comparable offer has been made to the trustees of the third scheme – Staveley Industries Retirement Benefits Scheme trustees and discussions are ongoing.

TPR executive director of frontline regulation Nicola Parish says: “This is a substantial settlement of our FSD case where neither the employers nor the targets were insolvent. It shows we can and will use our existing powers against a solvent employer if that is the right thing to do.

 “This case is a great example of how even after WNs have been served, TPR, the company and the trustees can work together to achieve a good outcome for members without the need to formally enforce our powers through the Determinations Panel.

“We will continue to take a commercially-minded and pragmatic approach when pursuing the use of our powers to achieve good outcomes for scheme members.

“In this case, the settlement will substantially improve the funding of the two schemes and also strengthen the employer covenant supporting those schemes.”