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Thousands of Woolworths pension scheme members will lose a big chunk of their retirement savings following the collapse of most of the business into administration yesterday, according one leading pensions expert.
Independent pensions consultant John Ralfe estimated the scheme is likely to end up with a deficit of £250m — more than double initial estimates — leaving about 9,000 current and former staff reliant on the government's safety net, the Pension Protection Fund (PPF).
While the PPF will guarantee much of the value of pension holders' retirement savings, the compensation will not recover the entire shortfall, and Woolworths pensions could still be hit by as much as 20%, Ralfe predicted.
Ralfe has calculated that the PPF may have to inject £100m into the Woolworths pension pot - one of the largest pension rescue payouts since the fund was set up three years ago. It would rank alongside huge payouts to plug shortfalls in schemes at MG Rover and Turner & Newall.
Insolvency experts expect the government's safety net fund to be called upon increasingly frequently in coming months, as the number of large employers going bust rises amid depressed equity markets.
The Woolworths pension scheme would join lending banks and others as unsecured creditors to the group's failed operations — the administration of which is being overseen by Deloitte.
The group reported a pension fund deficit at the start of August of £58.2m, on an accounting basis, but the company is privately conceding this figure could be higher after the 800-strong chain store and wholesale CD and DVD supplier went bust.
Initial estimates put the fund shortfall at £100m but Ralfe predicted the deficit, on the legally prescribed wind-up basis, will be much bigger.
With most of Woolworths' businesses in administration, and the remaining operations expected to be sold off, trustees must work out the cost of buying out liabilities through a deal with an insurance company. Woolworths accounts show the pension fund had liabilities of £384m at the start of February but Ralfe estimates the buyout cost of these liabilities would be closer to £500m.
Meanwhile, he suggests fund assets — shown in the accounts at £317m in February — are likely to have fallen considerably in recent months as 67% was held in shares. Ralfe estimates fund assets are now likely to be worth about £250m, suggesting an overall deficit of £250m.
Woolworths placed its 800-strong store chain and its CD and DVD wholesaling arm in the hands of administrators today. The stock market-listed group's only remaining substantial asset is its share in 2Entertain, a DVD publishing joint venture with BBC Worldwide. Woolworths is in discussions to sell the 2Entertain stake to BBC Worldwide, reportedly for more than £100m. The group claims the first £50m of proceeds are earmarked for the pension scheme, though some Woolworths creditors may seek to block efforts to ringfence cash.
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