Defined Benefit  

Carillion 'tried to wriggle out of pension duties'

Carillion 'tried to wriggle out of pension duties'

Collapsed construction company Carillion tried to "wriggle out of its obligations to its pensioners for the last 10 years," Frank Field, chairman of the Work & Pensions select committee, has claimed.

The Pensions Regulator (TPR) has also "questions to answer", said Mr Field, since the watchdog has been involved in the schemes valuation negotiations since 2008.

The committee criticised the outsourcing giant and the pensions watchdog after publishing today (29 January) a letter from Robin Ellison, chairman of trustees of Carillion's pension scheme.

The defined benefit (DB) pension schemes of Carillion, one of the UK government's biggest contractors, are all either in the retirement fund of last resort, the Pension Protection Fund (PPF), or will soon enter it.

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, according to the company's results.

After unsuccessful talks with its lenders and the UK government, Carillion made an application on 15 January to the High Court for compulsory liquidation.

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 more than £2 a year ago to about 14.2p just before it went into administration.

According to the letter, Carillion cited cash flow problems as reasons for not making higher contributions to its pension funds in 2011 and 2013.

However, according to the committee, the company paid more than £70m in dividends both of those years.

According to Mr Ellison, for both the 2008 and 2011 valuations, the trustee and Carillion were not able to reach an agreement.

This was essentially due to the trustee seeking to take a more prudent approach to funding than the company considered it could afford.

The regulator was involved in these discussions, and decided not to exercise its powers, Mr Ellison added.

The regulator has been approached by FTAdviser for comment.

Mr Field said: "The purported cash flow problems did of course not prevent them [Carillion] shelling out dividends and handsome pay packets for those at the top.

"This culminated in negotiating deficit contributions away entirely last autumn to enable more borrowing.

"Remarkably, this was endorsed by the trustees and The Pensions Regulator."

Regarding the watchdog's work, he added: "They have been sniffing around Carillion - at the trustees' behest - since at least 2008, though it is not apparent to what effect.

"When 10 years later the company collapses with £29m in the bank and £2bn in pension liabilities it doesn’t look good for them."

Regarding the pension schemes' deficit, this is the estimate given by the trustees on a buy-out basis – the amount that it would cost for an insurance company to take on the pension fund – as of 31 December 2016.

The PPF deficit – a valuation of the cost of buying out the scheme at the level of the pensions lifeboat benefits – is around £0.6bn.

The first hearing of the investigation into the Carillion collapse, launched by the work and pensions and the business, energy and industrial strategy (BEIS) committees, will take place tomorrow (30 January) in Parliament.