Coats agrees £74m settlement in pension scheme anti-avoidance case

Industrial thread manufacturing organisation Coats Group has agreed a £74 million settlement for one of its defined benefit (DB) pension schemes, which will bring an anti-avoidance case brought by The Pensions Regulator (TPR) to an end.

The settlement relates to the Staveley Industries Retirement Benefits Scheme (SIRBS), which is one of three DB pension schemes sponsored by employers within the Coats group, two of which the organisation inherited from business acquisitions.

Coats has signed a binding settlement agreement with the trustees of SIRBS, which includes an upfront payment of £74 million into the pension scheme, inclusive of recovery plan contributions of £39.5 million that have already been paid into the scheme since 1 January 2016. The agreement also involves a change in the statutory employer to Coats instead of a non-trading subsidiary of Coats, and a full buy-out guarantee from Coats to cover the liabilities of the DB scheme. The settlement also features annual deficit contributions of £2.2 million, as well as payment of administration expenses and levies, to be paid until 2028.

The scheme has approximately 3,700 members and an estimated ongoing deficit of £85 million.

The settlement is due to be completed by early July 2017.

The agreement follows an anti-avoidance investigation that TPR brought against Coats with regards to its three DB pension schemes. In addition to SIRBS, this includes the Brunel Holdings Pension Scheme (BHPS), which has 3,000 members, and the Coats Pension Plan (CPP), which has approximately 24,000 members.

TPR found that the schemes’ employers were insufficiently resourced to maintain the pension arrangements due to substantial deficits on a buy-out basis. TPR issued warning notices for SIRBS and BHPS in December 2013, and for CPP in December 2014 regarding its intention to use financial support directions (FSDs).

Coats presented its original settlement offer for the three schemes in September 2016. The organisation came to an agreement with trustees for CPP and BHPS in December 2016, which included upfront payments totalling £255.5 million, and a change in the statutory employer to Coates.

As a result of the agreement for SIRBS, confirmed in June 2017, TPR will cease regulatory action against Coats.

Mike Clasper, chairman at Coats, said: “Reaching this settlement with Staveley is a good outcome for all parties involved and following our announcement earlier this year, it now completes settlement with all three of our UK pension schemes. This, together with our recent entry to the FTSE 250, means Coats can continue to focus on growing the business to the benefit of all our stakeholders.”

Nicola Parish, executive director of frontline regulation at TPR, added: “The use of our powers in this case has led to an extremely positive outcome for pension savers and the group. The ongoing trading operations of Coats have improved and are sufficient to provide ongoing funding for the schemes. This is an excellent result for scheme members, bringing greater certainty that future benefits will be paid in full.

“Today’s report shows that even though our concerns about the funding of the schemes were enough to launch anti-avoidance action and issue warning notices, we maintained a strong working relationship with Coats and the trustee, allowing us to be flexible and achieve a fair resolution.

“We will not hesitate to use our financial support direction powers where we see member benefits put at risk, even where the sponsoring employer is solvent.”