The defined benefit (DB) pension schemes of Carillion, one of the UK government’s biggest contractors, will enter the Pension Protection Fund (PPF) after the company collapsed this morning (15 January).
Carillion has 13 final salary schemes in the UK with more than 28,500 members, and a deficit of £587m at the end of July.
After unsuccessful talks with its lenders and the UK government, this morning Carillion made an application to the High Court for compulsory liquidation. The accountancy firm PwC has been appointed as administrator.
The Pensions Regulator said it has been “closely involved in discussions” with Carillion and the trustees of its DB schemes.
In a joint statement, the chairmen of all the Carillion pension schemes said: "This is obviously very disappointing news. The trustees have been very closely involved in all discussions with stakeholders over the last few months, working to protect members’ interests.
"We will now work with PwC and the Pension Protection Fund to deliver detailed information to members about how their benefits will be affected, and provide them with all the support that we can.
"We are in the process of issuing an initial communication to all members, and we will make further information available as soon as possible, including by establishing a dedicated web page."
A spokesman for the PPF added: "We can confirm that we have been notified of the liquidation. We know this news will raise serious concerns for all people involved. We want to reassure members of Carillion’s DB pension schemes that their benefits are protected by the PPF."
Carillion manages schools, courts, prisons and hospitals and it also the second biggest supplier of maintenance services to Network Rail, in addition to maintaining military bases for the Ministry of Defence.
Philip Green, the chairman of Carillion, said the company – which is also one of the government's partners on the HS2 high-speed railway - had been unable to secure funding to support its business plan.
He said the government will be providing the necessary funding “to maintain the public services carried on by Carillion staff, subcontractors and suppliers”.
Carillion, which employs about 43,000 people, has been struggling for several months, issuing a profit warning last year that sank its share price – which has fallen from above 200p a year ago to about 14.2p this morning.
When a firm becomes insolvent and the pension scheme is passed to the PPF, the assets of the scheme are also passed over to the pensions lifeboat. According to Carillion's last annual report, its schemes have assets of £2.57bn and liabilities of £3.37bn.
The exact size of the impact on the PPF will not be the same as the headline deficit on the pension scheme, but it is likely to be well in excess of half a billion pounds.
Sir Steve Webb, director of policy at Royal London, said: “Carillion workers will understandably be devastated by the announcement of the liquidation of their firm.