Green risks spat with watchdog over pensions

Regulator not consulted over plans to make Arcadia staff pay more and work five extra years

Philip Green is facing a potential row with the Pensions Regulator after admitting that he did not consult the Government watchdog before moving last week to force staff at his Arcadia group to pay more and work five years longer before collecting their pensions.

Only last October, the billionaire tycoon authorised a £1.3bn dividend payment from the Topshop, Dorothy Perkins and Burton group - all but £130m of which went to his wife, Tina.

This was in the midst of consultations over what to do about the £600m pension fund, which reported a deficit of just £11.6m in its most recent accounts.

The dividend, which was more than five times Arcadia's annual profits of £253m and far exceeded the £850m paid by Mr Green when he bought the group in 2002, was made without consulting the Pensions Regulator.

The regulator was created in the 2004 Pensions Act to protect occupational pension schemes. It has the right to veto any transactions that might threaten future accruals into a pension fund and can review transactions up to six years after they take place.

If the regulator decides a deal had an adverse effect on the value of the company's pension fund, it can issue a Contribution Notice, forcing the company to make good any shortfall in the pension fund.

The regulator does not comment on individual cases, but Mr Green said: "The board of the company, chaired by Lord Grabiner [the top commercial QC] took first-class advice to satisfy itself that all aspects of the dividend payment were in order. The company was advised that clearance was not required from the Pensions Regulator."

As the Pensions Act is new, legal experts are not clear when companies need to consult the regulator. But there is an argument to say that by borrowing from the banks to pay the £1.3bn dividend, Arcadia increased its financial risks and this could have an impact on the pension fund.

When Mr Green tried to buy Marks & Spencer in 2004, the high level of debt in his proposed deal led M&S's pension fund trustees to rule that he would have to pay up to £1.6bn extra into its pension scheme, so scuppering the bid.

Arcadia is proposing to increase the pension retirement age from 60 to 65 and has asked staff to increase their monthly contributions by a third. The change does not affect senior executives. Arcadia has refused to divulge how many executives will still be able to retire at 60.

Mr Green blamed previous management, as the company had not made payments into its scheme for the 10 years before he took over and, since then, he has paid £7m to £8m a year into the fund.

In 2003, Arcadia asked UBS, the Swiss bank, to devise a new investment strategy aimed at preventing the scheme running into deficit. UBS was so pleased with its work for Arcadia that it devoted a whole page in its annual report to the task. However, it appears not to have done the trick.

Usdaw, the shop workers' trade union, has written to Mr Green demanding further talks about the changes. Mr Green said the company had provided information to the union and added that it represents only 311 staff out of a workforce of around 30,000.