Barclays has received final approval for its ring-fencing plans, which controversially involve moving its DB scheme to its investment banking division. Stephanie Baxter considers the judgment
A High Court judge has ruled the ring-fencing transfer of Barclays' retail banking business is unlikely to have an adverse effect on the bank's pension scheme and should go ahead as planned.
The judgment handed down on 9 March grants final sanction to the deal and dispels concerns that shifting responsibility for the defined benefit (DB) scheme would have a detrimental impact on members.
In January, news reports raised concerns the retail banking members of the pension scheme were going to be dumped into the 'casino bank' investment banking side. The case caught the attention of Work and Pensions Committee chairman Frank Field, who sent a letter to The Pensions Regulator to raise concerns and question its approach.
The impact on pensions ended up being a significant aspect of the hearing, which was heard in the High Court on 27 and 28 February.
This case is significant given that Barclays is the first of five banks to seek final sanction of their proposed ring-fencing transfer scheme under major banking reforms under the Financial Services and Markets Act 2000.
From April, the bulk of retail and business banking will be moved to the new ring-fenced entity, BBUK, while investment banking will remain within a separate entity - Barclays Bank. This has implications for its DB pension fund, the Barclays Bank UK Retirement Fund (UKRF), which has approximately 230,000 members.
Barclays Bank has been its principal sponsoring employer since the 1970s, and BBUK a participating employer since September 2017.
As of January 2026, the regulations will prohibit ring-fenced retail arms from being a sponsoring employer for multi-employer pension schemes that include the non-ring-fenced bodies; therefore it will not be possible for both to be employers of UKRF.
The process requires a skilled person to be appointed to assess how all interested parties will be affected by the ring-fencing transfer, who in this case was Grant Thornton partner Mark Byer, who provided submissions for the hearing.
Any person who thought they would be adversely impacted by the bank's ring-fencing proposals could make objections but almost all the statements of representations from the objectors were related to pensions - criticising the Barclays group, the trustees, and Byer. The objectors argued the retail bank should be the sponsoring employer of UKRF, the mitigation package negotiated by the trustees was insufficient, and it was morally wrong to associate the scheme with the investment banking side.
The Barclays group entered into a series of agreements with the trustees in July 2017 relating to the 2016 triennial actuarial valuation and in order to provide mitigation for the impact of the ring-fencing transfer.
It agreed to amend the schedule of employer contributions with a view to the UKRF reaching self-sufficiency by 2025 or 2026 rather than the prior target of 2030. Also, three sources of additional support beyond Barclays Bank's covenant were added. First, that BBUK will participate in the UKRF up to its exit shortly before January 2026; secondly, that Barclays Bank will provide collateral amounting to 100% of the technical provisions deficit; and thirdly, any proceeds from BBUK's dividends will be used to meet contributions Barclays Bank is unable to pay.
Chancellor of the High Court Sir Geoffrey Vos was satisfied about what had been agreed and how, saying he found a statement by member-nominated trustee director and chairman Peter Goshawk setting out the trustees' reasons for entering the agreement to be "compelling". He also said the argument the mitigation is inadequate has been "comprehensively rebutted" by the report of the skilled person, Byer, who concluded that the agreement provides "reasonable mitigation" to UKRF and therefore members are not likely to be adversely affected. A suggestion that the trustee was placed under inappropriate pressure to conclude the pension agreement was found to have "no basis".
One of the objections was that communications from Barclays and the trustees were misleading and inadequate, which the judge said has been rebutted by both the trustees and skilled person, and he had "no doubt the communications were appropriate and satisfactory".
The judge also said splitting up the scheme would be "entirely unworkable", and would "create many more problems than it would solve". There were no records of which part of the business people worked in, and many employees would have worked in different divisions.
As to the suggestion that BBUK should be the UKRF's sponsoring employer on the basis that Barclays Bank is smaller and riskier, Sir Geoffrey said the latter will in fact be larger and more diversified than BBUK, pointing towards the skilled person's report. The judgment said Barclays Bank was explained to be "highly diversified", with investment banking and market activities accounting for "less than 30% of income".
According to the judgment, the suggestion that Barclays Bank would be smaller than BBUK is factually incorrect, as pro forma historical figures show the former will have around £900bn assets compared to the latter's £200bn.
During the hearing, Linklaters acted for the trustees, while Slaughter & May acted for Barclays.
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