Defined Benefit  

Carillion workers could trigger pension protection test

Carillion workers could trigger pension protection test

Trade union Prospect is alerting the government about a group of 500 electricity workers at Carillion, which have pension protections in place granted by law that are better than the ones offered by the Pension Protection Fund (PPF).

These individuals, part of a group of 10,000 people, were members of the Electricity Supply Pension Scheme, which were provided with protections for their pension when the electricity industry was privatised in the 1980s.

According to Prospect pensions officer Neil Walsh, these workers have a right to ongoing accruals of a pension that it is at least as good as the scheme they were in before the sector was privatised.

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The protections also require that members are no worse off if the scheme is wound up.

The 500-strong group under Carillion's umbrella includes pensioners, deferred and active members, Mr Walsh added.

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 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.

For those who haven't reached retirement, moving into the pensions lifeboat will mean a reduction of 10 per cent in their benefits when they retire, plus they may lose some of their inflation proofing and higher earners may have some of their pension capped.

Mr Walsh said: "The PPF level of compensation - it is good that it is there, and it is a good level - is not the same than no worse off, which is a much higher level of protection.

"Not only because the 10 per cent haircut for people that haven't reached pension age, but obviously the weaker indexation of pensions and payments as well.

"I am not trying to denigrate the PPF, but it does imply that there is a cut in the level of benefits of the people that are transferred to it."

Mr Walsh argued this is the first time that the pension protections of electricity workers might need to be activated.

He said: "This is not an actual problem yet; but we want to make sure that the government is well aware that this is an issue that needs to be sorted out."

Last month, the trade union also alerted the government to the fact Carillion pensioners might lose retirement payments following the government contractor's collapse, since these are not made through the company's pension funds.

Prospect's 141,000 members are engineers, scientists, managers and specialists in areas such as agriculture, broadcasting, defence, education and children's services, energy, environment, heritage, shipbuilding, telecoms and transport.