Financial Challenges of Large UK Corporations

This assignment examines the severe financial difficulties experienced by prominent British corporations such as BHS, Tata Steel, and Tesco. Students will delve into the specific factors contributing to these companies' financial woes, analyzing their deficits, restructuring strategies, and broader implications for the UK economy. The analysis requires students to draw upon relevant case studies, financial data, and academic literature to provide a comprehensive understanding of the challenges faced by large UK corporations.

Personal Finance

Table of Contents
INTRODUCTION...........................................................................................................................3
QUESTION 1: PENSION DEFICITS.............................................................................................3
a. Selecting three companies which are listed on London stock exchange.................................3
b. Brief reporting on guidelines and regulations which are related to the payment of additional
contributions for addressing pension deficit................................................................................6
c. Discuss the nature and role of Pension Protection Fund in UK...............................................6
QUESTION 2..................................................................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES..............................................................................................................................10

INTRODUCTION
Personal finance is highly concerned with the effectual management of money that
contributes in the attainment of goals and objectives. It lays high level of emphasis on taking
highly suitable financial and investment decisions pertaining to retirement planning, budgeting
etc (Madura and Gill, 2015). In accordance with the aspects of personal finance it is the
accountability of individual to take suitable decision by assessing the level of monetary risk and
returns. Hence, overall aspects of personal finance are highly linked with making proper
allocation and use of income as well as expenses. The present report is based on pension deficit
plan or scheme which in turn provides deeper insight about the rules as well as regulations
related to it. Along with this, report will also highlight the extent to which companies listed on
London Stock exchange namely BHS, Tata Steel and Tesco is facing issue in relation to pension
deficit. Report will also develop understanding about PPF and the level of benefits provided by
it.
QUESTION 1: PENSION DEFICITS
a. Selecting three companies which are listed on London stock exchange
On the basis of cited case situation, three companies have been selected that are listed on
the recognized stock exchange of London. Hence, British Home Stores (BHS), Tata Steel and
Tesco are the multinational companies which are facing issues in relation to pension deficit. In
the present times, large sized business units such as BHS, Tesco and Tata steel etc. places
emphasis on providing employees with retirement benefits. Hence, defined benefit pension
scheme offers reward to the personnel on the basis of the aspect such as earning and time period
in relation to working. Pension deficit implies for the situation when companies fail to generate
enough return from amount of pension invested in other plans (Tyson, 2015). In this regard, due
to pressure from the side of employees, union etc. company is obliged to give more return to
personnel. Hence it is one of the main reasons due to which situation of pension deficit occurs.
1. Stating the pension deficit suffered by the above mentioned three companies

Pension deficit of BHS
Year Main scheme (in £) Senior scheme (in £) Total (in million £)
2006 -19 11 -7
2009 -148 -18 -166
2012 -211 -22 -233
2015 -315 -30 -345
2016 -500 -61 -561 (Deficit condition
of BHS, 2017)
Pension deficit of Tata steel
Year (in £) Pension deficit (in million £)
2012 140
2013 200
2014 280
2015 386
2016 485 (Deficit position of Tata Steel, 2017)
Pension deficit of Tesco Plc
Year Pension deficit
2012 1407
2013 1839
2014 2559
2015 3885
2016 2612 (Deficit position of Tesco Plc, 2017)
From the above mentioned table, it has been assessed that pension deficit of BHS
increased from £166 to £561 million at the end of 2016. On the other side, in the year of 2012
and 2013 deficit amount of Tata Steel was £140 & £200 respectively. Further, in 2014 and 2015
pension deficit accounted for £280 & £386. Hence, amount of deficit reached on £485 at the end
of 2016. Further, during the period of 2012 pension deficit amount of Tesco Plc was £1407. On

the other side, at the end of accounting year 2016 pension deficit amounted to £2612. Hence, by
considering such aspect it can be stated that both Tesco and BHS suffered high deficit from
pension investment scheme (Kaye and et.al., 2014).
2. Assessing the extent to which dividend policy of the selected companies are affected due to the
high pension deficit
Dividend paid
Year / companies BHS Tata steel Tesco Plc
2012 2 11639 1180
2013 2 11691 1184
2014 2 7867 1189
2015 2 9834 914
2016 1.8 7904 868
Pension deficit amount has high level of impact on the dividend aspect of firm. The
rationale behind this, business units are not in situation to offer high dividend to the shareholders
when their deficit level is high. Moreover, high burden of deficit closely influences the
profitability aspect or position of the firm (Verguet, Laxminarayan and Jamison, 2015). Hence,
due to such aspect dividend amount of Tesco Plc decreased from £1180 to £868. It shows that
Tesco failed to generate higher return from defined pension benefit scheme or plan. Meanwhile,
company failed to offer higher return to the shareholders.
On the other hand, dividend amount of BHS was constant such as £2m from 2012 to 2015.
In the year of 2016, amount of dividend paid accounted for £1.8 which is lower as compared to
previous years. Hence, with the aim to offer protection Philip Green has taken decision in
relation to invest £363 million in the pension scheme of BHS. Along with this, overall dividend
amount of Tata Steel also decreased from £11639 to £7904. This in turn has placed negative
impact on the financial position and overall image of the firm. From evaluation, it has been
assessed that most of the shareholders compelled Tata steel to close pension scheme or fund and
thereby resolves their financial issues (Graves and Savage, 2015). Hence, it can be presented that
pension schemes which have undertaken by BHS, Tesco and Tata steel had placed negative
impact on dividend policies or aspects.

b. Brief reporting on guidelines and regulations which are related to the payment of additional
contributions for addressing pension deficit
Pension is considered as a fund which is added to salary of employees during employment years
and refunded at retirement time. Therefore, company refund this fund according to terms and
conditions for job performances. Under some situations, sometimes entity is unable to provide
adequate payment that refers as pension deficit. For example; if there is decided to provide 10%
of any fund and available fund is only 6%. In such case, organization pays remaining 4% from its
own reserved fund that impacts on financial performance of entity (Bovenberg and Mehlkopf,
2014). However, for reducing this pension deficit some guidelines and regulations are provided
by company regulatory Act can express as:-
Defined Benefit Schemes (DB):- It is useful for reducing pension deficit by preparing
policy plans and its implementation. Under this scheme, there are some limitations considered
for funding in pension payments (Lamb, 2015). In reference to this, there are some maximum
and minimum limits are acquired for maintain balance and effective financial management of
company (Whitehouse, 2014). In this regard, Define Benefit Scheme has some objectives such
as-
 To encourage pension deficit reduction contribution
 Controlling over risks and cost for effective funding
 To strengthen the security of DB advantages and support to create balance of costing for
future development.
However, defined benefits scheme is beneficial for risk management through providing
limitations for funding regarding defined plans (Cai and Cheng, 2014). These plans are classified
into three kinds such as traditional, mixed and hybrid plans. In traditional defined plans there are
unique characteristics obtained for example; retirement savings for targeted employees and
presenting large tax deduction in government contribution. Similarly, hybrid defined benefit is
useful for decreasing improper investment strategies and taking advantage of proper governance.
In addition to this, mixed plan is useful for understanding scheme structure and benefits of
pension benefit policy procedures (Frieden, 2015). Hence, defined benefit plan is beneficial for
administrative work based pension scheme. By implementing and following policy plans
company can improve effectiveness in pension schemes.

Defined contribution Scheme (DCS):- This regulation scheme provides money
purchase benefits. These advantages are on behalf of fund contributed by employer and
employee of the firm. It affects investment growth as well annuity rate of contribution.
Therefore, cost for planning procedure remains more stable and effective. Including this,
adequate fund is allocated for decreasing pension deficit of any organization (Collins, Podger
and Dong, 2014). Thus, money purchase benefit is obtained through this scheme for transitional
regulation over deficit in pension.
Employer Financed Retirement Benefit Schemes (EFRBS):- It is related to
remuneration legislation for employer and employees pension schemes. In accordance to this,
finance retirement benefit scheme is implemented for allocating sufficient fund. It is tax
perspective scheme that is aware with needed for remuneration legislation. Presently, it is less
attractive because of separate pension arrangements. In addition to this, it has different forms
such as; funded unapproved retirement benefit schemes and unfunded unapproved retirement
benefit schemes. Thus, it includes both schemes' policies for decreasing in pension deficit. It
emerges positive aspects and proper regulatory guidelines for payment of additional contribution
for addressing pension deficit (Galiani, Gertler and Bando, 2016). However, it is interrelated
with pension schemes' effectiveness that is valuable for increasing in efficiency for pension
planning procedures.
National Employment Saving Trust (NEST):- It is trust based occupational pension
scheme which all employees are segregated in different sections with its own trustee. Therefore,
it is useful for meeting new enrolment requirements. The pension scheme is benefited for non
associated employers. Hence, NEST is effective pension scheme for saving employment and
reducing pension deficit that remains useful for implementing qualitative pension scheme
(Hamdani and et.al., 2015).
Personal Pension Scheme (PPS):- It is beneficial for investing building up fund. Under
personal provident scheme (PPS), pension income for providing to employees are proposed by
financial institutions and investment organizations for example; banks, insurance companies etc.
Hence, by taking advantage of this policy plan employee bares the investment risks
(Routledge.Jordà, Schularick and Taylor, 2016). It involves some regulations as; group personal
pension, self invested personal pensions, individual and stakeholder personal pension. Hence,

company maintains its good reputation through this procedures which remains essential for
reducing pension deficit (Sievänen, Rita and Scholtens, 2013). Therefore, investing personal and
group fund is useful for creating effectiveness in pension scheme.
c. Discuss the nature and role of Pension Protection Fund in UK
Pension protection Fund (PPF) implies for statutory fund that was introduced in UK by
the government with the motive to offer high level of protection to the companies. On the basis
of this aspect, Board of PPF is statutory corporation which has accountability to manage fund
and thereby makes payment to the members. The main aim behind the creation of PPF is to
develop confidence of employees in the Pension scheme. Moreover, now there are several
companies which are sponsoring defined pension benefit plan. In this, sometimes there is a risk
that members will lose some or their entire pension fund if related scheme was underfunded.
Hence, according to PPF such corporation or government offers compensation to the members
who become insolvent from such kind of plans (Gedminienė and Visockaitė, 2016). PPF of UK
also plays a vital role in offering compensation to the members who lose their money due to
fraud. Moreover, Board of PPF is assigned with the responsibility to manage Fraud
Compensation fund more effectively and efficiently. Along with this, in accordance with such
corporation also makes assessment of schemes before including it into PPF.
For this purpose, unit makes assessment of assets and liabilities. Hence, after making
evaluation of capability in relation to the purchasing of annuities members are included in PPF.
Besides this, PPF offers mainly two kind of compensation to the members. Hence, member /
individual who are in the age of normal retirement or took decision in relation to early retirement
due to the health issues can get 100% fund. In addition to this, other members of PPF also have
right to get or receive 90% compensation that is capped at certain level. In the year of 2011, cap
was £33219.36 respectively, whereas from 2013 such rate had increased by 3%. From overall
discussion, it can be stated that PPF provides guarantee to the members in relation to their
pensions. Thus, the amount of compensation is lower than the amount for which member is
entitled (Chmelíková and Svoboda, 2016). By taking into account all such aspects it can be
stated that PPF is highly significant which encourages people towards pension scheme and
thereby offers high level of benefits to them in terms of compensation.

QUESTION 2
In accordance with the cited case situation, Yasmin Bartok has received £100000 from a
trust. Hence, such amount is invested by her in 15-20 shares which are listed on London Stock
exchange. In this, yield which is enjoyed by Yasmin from such shares accounts for 3%. On the
basis of this aspect, it can be stated that Yasmin is year’s old lady who is single and having no
children. Back ground of Yasmin revealed that she is self-employed lady. It offers gardening and
cleaning services to the customers in the local area. In the present \times, Yasmin works for 25
hours per week. For services like gardening and cleaning, employers pay £10 and £12 per hour.
With the motive secure future Yasmin thinks to take Craniosacral Therapy. Moreover, in the age
of 60’s she will find difficulty in performing her current job.
By considering this, she has taken decision in relation to approaching therapists. Along
with this, flat of Yasmin demands for repair and it is related to the amount of £25000-£30000.
Along with this, Yasmin has also invested £30000 in premium bonds. Yasmin also owes a credit
card with the amount of £10000. However, interest charges are very lower because it switches
from credit card provider to other more frequently. Along with this, there are several
expenditures which Yasmin has to incur such as mortgage, insurance, taxation, gas and electric,
house insurance, telephone, food & drink as well as tobacco etc. In this regard, now Yasmin is
facing issues in relation to meeting all such expenses in the best possible way. Hence, several
options which are available to Yasmin are enumerated below:
1. Renovation: Cited case situation presents that Yasmin requires £25000- £30000 for
meeting the purpose of renovation. However, after performing renovation activity
Yasmin would not become able to get high level of benefits in comparison to the freehold
property. Hence, Yasmin should avoid investing money in the renovation kind of
practices.
2. Selling of property and buying other freehold property: Moreover, after investing
£50000 in shares, Yasmin has remaining £50000 which can be used by her in other
profitable activities. Thus, by investing £40000 in purchasing the freehold property
Yasmin can generate high rental income from tenant. Along with this, by selling existing
property tenant will generate income. In this way, by making use of such finance Yasmin
can buy freehold property. This in turn also provides chance to the owner to earn high

income or money by giving some part of land on lease to others. Moreover, usually
tenant prefers to take land on rent which is highly furnished and maintained (Root and
et.al., 2016). Hence, such investment will offer opportunity to Yasmin to get fixed
monthly income. In this way, such income will help individual in meeting expenses more
effectively and efficiently.
3. Continue to invest fund in the shares which offer return such as 3% per annum : In
accordance with such aspect Yasmin will get £3000 return per annum from shares.
However, there is a risk with shares because in this company offers dividend to the
shareholders only when it earns enough amounts of profit. In this, if Yasmin will not get
enough return from shares then it closely influences the financial aspects of firm. By
keeping in mind such trend it is recommended to Yasmin to invest £40000- £50000 in
shares. This in turn helps her in managing both risk and return.
4. Use of money for the creation of personal pension fund: Yasmin also needs to place
emphasis on investing fund in PPF. Moreover, pension scheme will enable individual to
live her life after the age of 60-70’s without facing any kind of difficulties. Along with
this, PPF is highly secured kind of loan which in turn offers protection to the individuals
from fraudulent activities etc.
5. Using part of money to fund a qualification in Craniosacral Therapy: In
accordance with the given case situation now Yasmin is earning £1200 in each month from
cleaning and gardening activity. In this, by spending amount in Craniosacral Therapy Yasmin
can strengthen her physical capability to a great extent.
Hence, from overall evaluation, it is recommended to Yasmin to employ money in the
various kinds of activities. Hence, lady needs to invest some fund in shares which in turn
offers higher return to her in the near future. Along with this, by investing some part of
money in renovation Yasmin can meet her expenses in an effectual way.
CONCLUSION
From the above report, it has been concluded that pension deficit is the main causes that
have high level of impact on the dividend policies and decision making of firm. It can be seen in
the report that due to the high level of pension deficit BHS, Tesco Plc and Tata Steel had faced

difficulty in managing the operations. Along with this, profit level of the firm also decreased due
to such high deficit. Thus, all these business organizations need to develop highly competent
framework for reducing the level of such deficit. Besides this, it can be inferred that PPF
develops high level of confidence among the members regarding pension scheme. Moreover,
such corporation offers compensation to the personnel if any default takes place in relation to
fraud etc. Further, by following the rules and regulations framed by UK government business
units can resolve issues in relation to deficit through the means of additional funding. Along with
this, it has been articulated that Yasmin needs to make focus on investing money in the shared
and pension fund. By this, she would become able to meet monthly expenses.

REFERENCES
Books and Journals
Bovenberg, L. and Mehlkopf, R., 2014. Optimal design of funded pension schemes. Annu. Rev.
Econ. 67(1). pp.445-474.
Cai, Y. and Cheng, Y., 2014. Pension reform in China: challenges and opportunities. Journal of
Economic Surveys. 78(4). pp.636-651.
Chmelíková, B. and Svoboda, M., 2016. Difference in Financial Knowledge of Finance
Students in the Czech Republic. European Financial Systems. pp. 262.
Collins, P.D., Podger, A. and Dong, K., 2014. Public policy for pensions reform: A governance
challenge for public administration and development: Introduction to the Special Issue.
Public Administration and Development. 5(4). pp.223-230.
Frieden, J., 2015. Banking on the world: the politics of American international finance.
Galiani, S., Gertler, P. and Bando, R., 2016. Non-contributory pensions. Labour Economics.
7(5). pp.47-58.
Gedminienė, D. and Visockaitė, A., 2016. The importance of personal finance for investment
and applying financial behaviour principles in personal finance investment decisions in
Lithuania. Socialinių mokslų studijos. 8(1). pp. 118-131.
Graves, E. and Savage, S., 2015. Financial Pasts, Presents, and Futures of Community College
Students of a Personal Finance Course. Journal of Business & Finance Librarianship. 20(1-
2). pp. 116-132.
Hamdani, A. and et.al., 2015. Incentive Fees and Competition in Pension Funds: Evidence from
a Regulatory Experiment in Israel. Public Administration and Development. 7(5). pp.78-89.
Kaye, J. J. and et.al., 2014, April. Money talks: tracking personal finances. In Proceedings of
the SIGCHI Conference on Human Factors in Computing Systems. pp. 521-530.

Lamb, L., 2015. Aboriginal Fringe Finance Use and Financial Capabilities: Survey Evidence
from a Canadian City. Economic Papers: A journal of applied economics and policy. 34(4).
pp. 273-289.
Madura, J. and Gill, H. S., 2015. Personal finance. Pearson Canada.
Root, J. and et.al., 2016. Teaching Personal Finance Mathematical Problem Solving to
Individuals With Moderate Intellectual Disability. Career Development and Transition for
Exceptional Individuals. pp. 2165143416681288.
Routledge.Jordà, Ò., Schularick, M. and Taylor, A. M., 2016. The great mortgaging: housing
finance, crises and business cycles. Economic Policy. 31(85). pp. 107-152.
Sievänen, R., Rita, H. and Scholtens, B., 2013. The drivers of responsible investment: The case
of European pension funds. Journal of Business Ethics. 677(1). pp.137-151.
Tyson, E., 2015. Personal finance for dummies. John Wiley & Sons.
Verguet, S., Laxminarayan, R. and Jamison, D. T., 2015. Universal public Finance of
tuberculosis treatment in India: an extended cost‐effectiveness analysis. Health economics.
24(3). pp. 318-332.
Whitehouse, E., 2014. Civil service pension schemes. Options for reform. 90(8). pp.90-99.
Online
Deficit condition of BHS. 2017. Online. Available through:
<https://www.publications.parliament.uk/pa/cm201617/cmselect/cmworpen/54/54.pdf
Deficit position of Tata Steel. 2017. Online. Available through:
<https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/526731/
british-steel-pension-scheme-consultation.pdf >. [Accessed on 1st March 2017].

Deficit position of Tesco Plc. 2017Online. Available through:
<https://www.tescoplc.com/investors/reports-results-and-presentations/financial-
performance/five-year-record/ >. [Accessed on 1st March 2017].
>. [Accessed on 1st March 2017].