Defined Benefit  

Carillion trustees asked regulator to intervene five years ago

Carillion trustees asked regulator to intervene five years ago

The trustees of six of collapsed Carillion defined benefit (DB) pension schemes asked for intervention from The Pensions Regulator (TPR) as far back as 2013, to require the company to pay more in deficit recovery contributions.

However, the watchdog only opened a formal investigation into Carillion on 18 January this year, three days after it went bust, MPs from the work and pensions and the business, energy and industrial strategy (BEIS) committees have reported.

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.

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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 two governmental committees published today (20 February) letters from Robin Ellison, chairman of trustees for six of Carillion's defined benefit (DB) pension schemes, which asked for the assistance of the regulator in negotiations with the company back in 2010.

At the time, even though the contractor had announced a 12 per cent increase in dividends, it maintained it could not afford to pay more than £23m per year for the pension deficit.

The trustees had advice that a minimum of £35m was affordable for the company at that point.

Three years later, an "impasse" had been reached in negotiations between the trustees and the company, the committees said.

The trustees had proposed contributions of £65m per year over 14 years to meet a deficit they estimated at £770m. The company made a "take it or leave it" offer of just £33.4m per year over 15 years.

At this point in time, the trustees offered arbitration and mediation to the company, which was refused, and at that time requested The Pensions Regulator to intervene formally.

A spokesperson at The Pensions Regulator said: "When the trustees wrote to us in 2013 to say they could not agree funding plans with the company, we did intervene by threatening to use our powers unless a funding plan was agreed.

"Our intervention resulted in a significant increase in the amount of money the company was prepared to pay into the scheme. We believed this was reasonable based upon our understanding of the company's trading strength as set out in its audited accounts.

"The investigation we have now launched is looking at whether there are grounds to use our anti-avoidance powers."

According to Labour MP Frank Field, chairman of the Work and Pensions select committee, the letters published today (20 February) "suggest the Carillion directors were contemptuous of their pensions".