Defined Benefit  

Carillion collapse adds to pressure for DB rule reform

Carillion collapse adds to pressure for DB rule reform

The collapse of Carillion, which will see one of the UK government's biggest contractors' pension schemes enter the Pension Protection Fund (PPF), is putting pressure on the government to publish its defined benefit (DB) white paper, which was once more delayed last week.

Carillion, which has 13 final salary schemes in the UK with more than 28,500 members, and a deficit of £587m at the end of July, made an application to the High Court for compulsory liquidation this morning (15 January).

Ian Browne, pensions expert at Old Mutual Wealth, argued this case adds to the pressure for the government to tackle the sustainability of the DB schemes in its expected white paper.

Mr Browne said: "The government are expected to issue a white paper on the future security and sustainability of DB schemes soon and the pressure is on for them to deliver.

"A green paper, on the same topic, appeared in February last year, which stimulated discussion, but showed they were a long way from reaching a conclusion."

The Department of Work & Pensions (DWP) has been working on its white paper on DB schemes, which was first expected to be published in 2017, and then delayed to February 2018.

The paper, which follows a consultation launched in February into what needed to be done to ensure confidence and secure the future of these schemes, will consider the need to adapt the regulatory regime.

However, Guy Opperman, minister for pensions and financial inclusion, said last week in Parliament that the document will "be delivered at some stage this spring".

He said: "Spring is an elastic term in the House of Commons […], but it will certainly be delivered before the summer period."

Steven Cameron, pensions director at Aegon, told FTAdviser that he expects "not just the timing, but also the content" of the document is elastic.

He said: "The DB landscape continues to change rapidly and proposals which might have looked reasonable a year ago may no longer look fit for purpose.

"Coupled with this, it is highly likely that changes to DB rules and regulations, which look attractive to sponsoring employers are less so for members and vice versa, making potential changes highly contentious.

"In the meantime, we expect the demand for advice on whether or not to transfer out of DB schemes will continue to rise."

For Sir Steve Webb, director of policy at Royal London, a few months' delay won't make much difference, simply because he doesn't expect the new document "to propose anything very radical".

He said: "Despite various high-profile cases, the government take the view that the regulatory framework is broadly appropriate. 

"We may see some limited increases in the power of the regulator, perhaps to cover extreme cases like BHS, but even these would not be implemented for some years as the government needs to find Parliamentary time to get legislation through and then consult on the detail. 

"I think it will be business as usual for DB schemes in terms of the law for many years to come."