Toys R Us has become the subject of a Work and Pensions Committee investigation due to the company’s rising pension deficit, and concerns over the impact of a £585.5m loan write-off by the retailer on the pension scheme’s funding position.

It is the second company this week to become subject of a probe by the Committee, as it was revealed yesterday, 4 December, that it has also written to the trustees of wholesaler Palmer and Harvey’s pension scheme. As part of both investigations, chair of the Committee, Frank Field, has also written to The Pensions Regulator chief executive Lesley Titcomb.

In September 2017, Toys R Us’ US parent company filed for bankruptcy protection, and yesterday, 4 December, the UK subsidiary put forward plans for a Company Voluntary Arrangement, and plans to close 26 stores.

In the letter to Toys R Us vice president operations Graham Barker, who also acts as chair of the pension scheme, Field noted that the latest accounts show that for the year end 28 January 2017, the company wrote-off a £584.5m loan owed to it by a firm in the British Virgin Islands, named TRU (BVI) Finance 11 Ltd. Toys R Us’ loss before taxation that year was £673.3m.

It was also revealed that there is no record of a full actuarial valuation of the retailer’s pension scheme since 2007. However, its latest account show a defined benefit deficit of £18.4m at 28 January 2017, up from £10.3m the previous year.

In light of this, Field has asked Barker several questions, including what the implications of a proposed CVA will have on the scheme and what actions have been taken to secure the interests of the scheme since the US parent company filed for bankruptcy.

With regards to the loan write off, he also wants to know what impact it has had on the scheme, such as the fulfilment of the scheme’s recovery plan. He also wants to know how the sponsoring employer justified the loan write-off to them scheme.

Furthermore, he has asked the scheme to confirm if the last full actuarial valuation was in 2007, and why, given the schemes are meant to carry out one every three years. Field has also asked whether the trustees have negotiated with the retailer over the continuation of the recovery plan, and what communication the scheme has had with members about the ongoing situation.

Field also asked whether the scheme has approached the regulator for guidance.
In addition to this, he has written separately to TPR asking what contact it has had with the scheme since the parent company filed for bankruptcy, including what recent discussions the regulator has had with the trustees about the fulfilment of the recovery plan.

He has also asked what TPR’s assessment is of the impact of the write-off of the TRU (BVI) Finance 11 Ltd loan on the DB scheme, and whether it is “materially detrimental to the scheme’s funding position”. In his final question, he asked for clarification of when the scheme last submitted a full actuarial valuation to them.

Commenting, a PPF spokesperson said: "The filing of CVA proposals means that an assessment period is automatically triggered for a pension scheme. However, this does not mean that the scheme, or its members, will be transferred into the PPF. Whatever the outcome of the CVA the pension scheme members can be reassured that they remain protected.”

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