Palmer & Harvey’s pension deficit more than doubled over the last 10 years to £80m, as shareholders and some directors took about £70m in dividends from the heavily indebted and loss-making convenience store supplier.
The company, which went into administration last week with the loss of 2,500 jobs and a further 900 at risk, was owned by dozens of private individuals via a complex web of equity and loans.
Shareholders received more than £8m a year in dividends even as the company made losses of more than £10m a year, a Guardian investigation revealed last week.
The company supplied 90,000 stores, including 50,000 independents, which are now struggling to secure stocks of tobacco and groceries at one of the busiest times of the year.
Since it fell into administration, P&H’s pension scheme, which has 2,500 members, is being assessed for entry into the pensions lifeboat, an industry-funded scheme set up by the government. Pensioners are only guaranteed 90% of their expected benefits under the Pension Protection Fund (PPF).
It is understood that the pension deficit under the PPF assessment is £80m, as first reported by the Daily Mail. The Guardian has established that this is a rise of more than £50m from the deficit level in 2007, the year before a management-led buy out which saddled P&H with new debts and a large annual dividend.
One well-informed source said that the pension deficit increase had been most marked in the last five to six years.
Frank Field MP, chairman of the work and pensions select committee, said he would be looking into events at P&H and prepare a report for parliament.
Field has written to the pensions regulator asking whether a recovery plan was in place. He also wrote to the chair of the group’s pension fund trustees on Monday asking whether they had challenged the group’s dividend policy and how the company’s board had justified these payments.
He said the committee was also examining whether it was necessary to introduce further legislation that would give the pensions regulator more power to prevent shareholders extracting cash from companies that had a pension deficit.
“Companies pension schemes are being left vulnerable and falling into PPF while directors are walking off with huge sums of money before the crisis becomes public. We have to revamp the regulator so they are given, and then use, the powers to say ‘we have a hold on that money’.”
Accounts for Palmer & Harvey (Holdings), one of the group’s parent companies, show a pension deficit of £5.3m in 2016, down from £10.5m a year before but up from £1.45m in 2009.
This accounting estimate is based on less conservative estimates about the likely future liabilities and asset performance than the PPF.
A PPF spokesperson said: “We are aware that Palmer & Harvey has gone into administration. As a result, we expect that the pension scheme will enter the PPF assessment period, and members can be reassured that we are there to protect them.”
P&H was bought by its management team in 2008 in a deal that valued the company at £345m. The deal was largely funded by debt.
P&H has paid out more than £80m in bank interest charges since 2008 on top of about £70m in dividends to shareholders.
P&H (2008), the wholesaler’s parent company, paid out more than £8m a year in dividends since 2009 to its shareholders despite making losses of about £10m a year or more in all but one year, 2014.
From 2005, companies have been able to seek clearance for buy-outs from the pensions regulator, protecting directors from action to secure additional money for the fund in future. It is not clear whether P&H’s owners did so and the regulator declined to comment.