Mothercare forced to backtrack on pension amid Covid crisiswritten by Bella Palmer
The latest valuation of the company’s DB schemes, along with market conditions caused by Covid-19, has prompted the group to negotiate a five-year extension on contribution payments
Mothercare's full-year 2019/20 results, published on Friday, showed the closure of Mothercare UK last year after 58 years of trading had eliminated around £30m in operating losses for the wider group.
The latest triennial valuation of Mothercare UK's defined benefit (DB) schemes, along with "market shifts" caused by Covid-19, has now seen the group negotiate a five-year extension on contribution payments as it looks to rebuild its own position.
Mothercare confirmed it had signed heads of terms with the trustees of its DB schemes for the revised schedule of contributions after first agreeing to a revised schedule immediately following the UK business' closure. These are set to allow it to pay contributions at an "affordable level" between 2020 and 2025.
Under the agreement reached with the DB trustees, Mothercare will also be required to make cash payments to the pension schemes if it makes dividend payments to its own shareholders.
Mothercare chairman Clive Whiley said: Despite our best efforts, by autumn 2019 it became clear the UK retail operations were not capable of returning to a level of structural profitability and returns that were sustainable for the group and/or attractive enough for a third party to operate on an arm's length basis.
We have consistently sought to preserve the status of our former colleagues who are pensioners. Further, when we agreed an 18-month revised payment schedule in November 2019, we believed there to be the possibility of an estimated 25% reduction in the deficit at the then next triennial valuation date of 31 March 2020, he said.
Whiley said, given financial market movements in the light of the Covid-19 disruption, that prospect evaporated and we expect that the deficit was broadly unchanged as at that date. Accordingly, we are grateful to the Mothercare pension trusts' trustees for agreeing to a further rescheduling of contributions over the next five years.
The previous triennial valuation of the DB pension scheme in March 2017 showed it contained a deficit of £139m.
Mothercare reached an agreement with the UK business' administrator PwC earlier this year for the transfer of liabilities and assets, including the transfer of Mothercare UK's liabilities in respect of the group's pension fund liabilities and the associated deficit.
All of our stakeholders faced an uncertain future given Mothercare UK's perilous financial situation, Whiley said. The successful implementation of these actions has returned Mothercare to a stable and sustainable footing, preserving value for many of our stakeholders, most notably our pension fund.
The DB schemes were closed to new members at the end of the 2012/13 financial year. An estimated 2,500 jobs were affected by Mothercare UK's closure.
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