The trustees of the Box Clever Group Pension Scheme committed a form of "reverse moral hazard" by running the scheme on while its participating employers were in administrative receivership, ITV has claimed.
The allegation was made during the final day of an Upper Tribunal hearing where The Pensions Regulator (TPR) is seeking to impose a financial support direction (FSD) each on five ITV Group companies. The case related to the launch of a 50:50 joint venture, named Box Clever, between ITV - then known as Granada - and Thorn, in 2000, and the funding of its defined benefit (DB) pension scheme.
The court had previously heard the trustees of the scheme had delayed winding the scheme up and/or putting the scheme into the PPF in order to try and secure 100% of members' benefits on an ongoing basis.
While the trustees gained the power to trigger a PPF-assessment period on 2007, this was not actually used until 2014, and, during this period, the number of pensioners eligible for full benefits in the PPF (subject to the cap) had more than doubled from 476 to 1,146.
Closing its case on 9 February, ITV claimed this was "a clue as to why the scheme was run on" and an "obvious advantage to the trustees at the expense of the PPF".
The broadcaster added this amount to a form of "reverse moral hazard" whereby the company was now being expected to pick up the bill for benefits accrued while the trustees failed to act because they had taken the PPF's existence into account.
ITV's barrister Michael Furness QC said: "It was effectively a gamble that in the end failed. [It] was taken and could only have been taken because the PPF was there to pick up the pieces if things went wrong. That aspect of the deficit should not be laid at our door. [It is] a form of reverse moral hazard because we are suffering from the trustee taking advantage of the very legislation which is there to protect them… with the view of us picking up the bill."
‘Competition of undesirability'
Furness added TPR's case had been reduced to a "competition of undesirability" - with the regulator previously arguing the broadcaster saw it as more reasonable to expect pensioners to receive reduced benefits than for ITV to cough up some cash - and that this was "not the right approach".
He urged the court to reject this line of argument: "It is not a question of competition of undesirability. [The regulator's] case gives rise to the possibility that it may be unreasonable that anybody pays. We would strongly urge the tribunal to eschew that kind of competition of unreasonableness and simply address our circumstances."
He added that, even if an FSD was imposed, there would be no advantages to members whatsoever. This is because, he said, ITV can only be chased for, at most, 60% of the cash needed to plug the funding gap and without similar action against Carmelite - the owner of some of Thorn businesses - this would not allow the scheme to fund Pension Protection Fund (PPF) benefit levels.
"The regulator's emphasis on the importance of giving pensioners full benefits is a bit wide of the mark, because we say there is an infinitesimally small chance that any pensioners at all will get anything up above PPF benefits," he said. "The members are simply not going to see any [additional] benefits; they will simply get their PPF benefits."
ITV hit back at "wholly unwarranted criticism" of its expert corporate financing and accounting evidence, given by FTI Consulting senior managing director David Ashton, who TPR had suggested was "subconsciously providing a less independent view".
Another of ITV's barristers, David Railton QC, dismissed the criticism while decrying TPR's contrasting evidence, made by Lincoln Pensions chief executive Darren Redmayne, as "unsatisfactory".
"We also address the wholly unwarranted criticism of Mr Ashton," Railton said. "Mr Ashton was a wholly straightforward witness and a very experienced expert, and the suggestion he was subconsciously biased was both misplaced and misguided."
He added it was "a bit rich" when TPR was relying on Redmayne's evidence, particularly pointing to his valuation of ITV's TV rentals business prior to the joint venture, which were significantly below a range of other valuations given at the time.
"This is not just incoherent but it lacks any credibility," Railton added.
The case concluded on 9 February; a judgment date is yet to be decided.
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