MPs have been told Carillion pension scheme trustees were forced to accept plans that would lead to a deferral of pension contributions or banks wouldn't assist the business with loans.
Robin Ellison, chairman of trustees for six of Carillion's defined benefit (DB) pension schemes, told MPs from the work and pensions and the business, energy and industrial strategy (BEIS) committees that Carillion recovery plans weren't agreed with the scheme trustees but "were imposed" on them.
Speaking at a Parliamentary hearing today (30 January), he said: "Towards the end of last year/beginning of this year, the company was engaged in getting two bits of fresh financing: it needed cash flow support and fresh capital injection.
"The immediate call which would see them get over the hump was of about £140m, which the regulator, us and the banks were involved in rearranging.
"And the call from the banks – and from the whole financing community – was that they weren't prepared to put money into the company to see it go into the pension scheme.
“They wanted to see it going to the trading. And the question was would we take a modest hit for a brief period of time to allow the company to bridge its cash flow problem towards a better future?"
The defined benefit 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, had 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.
The agreement being discussed before the company went into liquidation was that Carillion would defer eight months of contributions due to the pension schemes, to be repaid in full with interest by January 2019.
Both committees released a report assessing Carillion's covenant strength from 2012, which said that the company could afford to significantly increase scheme contributions to above £64m per year, and that this would result in a recovery plan length of six to 10 years as opposed to the 15-year plan proposed.
The assessors also stated that Carillion had historically prioritised other demands on capital ahead of deficit reduction in order to grow earnings and support the share price.
Questioned by the MPs about this report, Mr Ellison argued that the trustees seek to implement a lot of these recommendations.
He said: "We engaged in robust discussions, with inadequate results.
"Even with hindsight, I don’t think there’s anything more that we could have done to persuade higher contributions to be paid."
Questioned if The Pensions Regulator (TPR) could have made such a request, he said: "They have the right to compel additional contributions, and it would have been nice if they had compelled the company to pay £10m to £15m contributions a year."
The regulator has, in the meantime, denied any negligence over Carillion's pension funds, arguing the information it had over the years did not cause sufficient concern to justify the use of its powers.
The next hearing of the investigation into the Carillion collapse will take place next week (6 February) in Parliament.
maria.espadinha@ft.com
