The episode ultimately prompted a major legislative response, culminating in the Pension Schemes Act 2021, which substantially strengthened the powers of The Pensions Regulator (TPR) and introduced new criminal sanctions.
The Act, which came into force in October 2021, was the last major change to the enforcement regime under UK pensions regulation and is an area which schemes and sponsors should remain up to speed with, especially during economically uncertain times.
The BHS Scandal: Background and Collapse
BHS was a long-established UK retailer, purchased by Sir Philip Green in 2000 for £200 million. At that time, the company’s pension scheme was in surplus, but over the subsequent years its financial health deteriorated significantly.
A key criticism of Green’s ownership was the extraction of substantial value from the business. Between 2002 and 2004 alone, hundreds of millions of pounds were paid out in dividends to shareholders, while insufficient investment was made in the company or its pension scheme. As a result, the pension scheme moved from a surplus position to a substantial deficit—reaching a deficit of approximately £345 million by 2015 and around £570 million by the time of insolvency.
In March 2015, BHS was sold for £1 to Retail Acquisitions Ltd, led by Dominic Chappell, a buyer widely criticised as unsuitable. Just over a year later, in April 2016, the company entered administration, resulting in the loss of around 11,000 jobs and placing approximately 20,000 pension scheme members at risk.
The Parliamentary inquiry that followed described the affair as “the unacceptable face of capitalism,” highlighting failures in corporate governance, regulatory oversight, and trustee protections. The pension scheme ultimately entered a Pension Protection Fund (PPF) assessment period, raising the prospect of reduced benefits for members.
Regulatory Action and Lessons Learned
The Pensions Regulator (TPR) faced significant criticism for its handling of the BHS case. Although TPR had existing “moral hazard” powers under the Pensions Act 2004—allowing it to issue contribution notices or financial support directions—it was perceived as slow to act and insufficiently proactive.
Following an investigation, TPR issued warning notices and ultimately secured a settlement with Sir Philip Green, who agreed in 2017 to contribute £363 million to the pension scheme. Nevertheless, the case exposed limitations in the regulatory framework, particularly its inability to prevent detriment to pension schemes before corporate damage occurred.
In response, TPR acknowledged it needed to become “clearer, quicker and tougher” in its oversight of DB schemes. More broadly, the BHS scandal prompted government concern that the law did not adequately deter corporate behaviour that could undermine pension security, especially in the context of business sales, dividend extraction, and restructuring.
The Legislative Response: Pension Schemes Act 2021
The Pension Schemes Act 2021 represents the most significant reform of UK pensions law since 2004. Its origins lie directly in high-profile corporate failures, including BHS, which revealed gaps in the regulatory regime.
At its core, the Act strengthens TPR’s powers in three key ways: expanding moral hazard powers, introducing criminal offences, and enhancing regulatory oversight of corporate activity.
1. Expansion of Moral Hazard Powers
Prior to the Act, TPR could issue contribution notices where an act was materially detrimental to a scheme or where there was an intention to avoid pension liabilities. The 2021 Act significantly broadens these powers by introducing two additional tests:
- Employer Insolvency Test: Applies where an act would reduce the amount recoverable by the scheme in a hypothetical insolvency.
- Employer Resources Test: Applies where an act materially weakens the employer’s financial ability to support the scheme.
These new tests make it easier for TPR to intervene in a wide range of corporate transactions, including mergers, refinancing, and dividend payments, even where there is no explicit intention to avoid liabilities.
2. Introduction of Criminal Offences
One of the most striking reforms is the creation of new criminal offences aimed at deterring reckless or abusive conduct. These include:
- Avoidance of Employer Debt
- Conduct Risking Accrued Benefits
These offences can carry penalties of up to seven years’ imprisonment and/or unlimited fines.
The breadth of these provisions is notable, as they may apply not only to employers but also to directors, shareholders, lenders, and advisers involved in corporate decision-making. This reflects a deliberate policy choice to deter the kind of behaviour seen in the BHS case, such as asset extraction and under-resourcing of pension schemes.
3. Enhanced Regulatory Oversight
The Act also introduces stronger information-gathering powers and expands the “notifiable events” regime. Employers must now inform TPR of certain key corporate activities—such as the sale of a sponsoring employer or granting security over assets—and provide supporting information.
In addition, TPR has new powers to impose civil penalties of up to £1 million and to compel individuals to attend interviews or provide documents. These changes aim to ensure earlier regulatory intervention and greater transparency around potentially harmful transactions.
Conclusion
The BHS pensions scandal was a watershed moment for UK pensions regulation. It demonstrated how corporate decisions—particularly those involving dividend extraction, weak oversight, and ill-considered sales—could undermine the security of DB pension schemes and leave members exposed.
The Pension Schemes Act 2021 represents a direct legislative response to these failings. By equipping TPR with stronger, more flexible powers and introducing significant criminal sanctions, the Act aims to deter harmful behaviour and ensure that pension schemes are better protected in the future.
Ultimately, the legacy of BHS lies not only in the losses suffered by its employees, but also in the fundamental reshaping of the UK pensions regulatory landscape toward a more interventionist and enforcement-driven model.