The Pensions Regulator (TPR) threatened to use of its powers in discussions about the Carillion defined benefit (DB) pension schemes seven times during 2013 and 2014, but never enforced its warnings.
In a letter published today (21 March) by the Work and Pensions select committee, Lesley Titcomb, TPR’s chief executive, said the potential for use of its powers was set out in correspondence with the company and the defined benefit schemes trustees during the watchdog involvement in the 2011 valuation negotiations.
The Pensions Regulator threatened to use section 231, which gives them the right to impose a contribution schedule on an employer for its pension scheme, if it is not happy with the schedule agreed between the employer and the trustee.
At the time of these negotiations, the trustees were weighing up accepting a reduced offer of £42m a year from Carillion against handing control over to TPR, according to board minutes published by the committee.
It said: “In the absence of an agreement it was noted that TPR could refer the matter to the determinations panel to impose a schedule of contributions but it was estimated this could take two to three years.”
The 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, 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.
Ms Titcomb revealed, during her hearing in Parliament last month, that the watchdog has only initiated regulatory action under section 231 powers three times.
In her letter, she said that “TPR has not yet formally exercised this power as on two of these occasions an acceptable agreement was reached”.
The third occasion occurred last year and remains an active case, where the regulator is “seeking to address apparent inequitable treatment of the scheme relative to dividends,” she added.
The other cases were Docklands Light Railway and EMI.
Ms Titcomb said: “We have yet to bring a section 231 funding case to its full conclusion. We have written to you about our ongoing funding casework and occasions where the threat of its use has resulted in better funding for schemes.
“Section 231 is one of several regulatory tools we are able to use to good effect without always having recourse to full enforcement activity, which can be costly and takes time, but we agree that for our powers to be a credible deterrent we need to demonstrate that we are prepared to use them and we are committed to making greater use of our s231 powers.”
In view of this, the regulator asked the government to strengthen its section 231 funding powers, “which are poorly defined in legislation,” in its DB white paper.
Ms Titcomb said: “Our proposed changes would enable us to set clear expectations of employers and trustees and build a clear evidential case to take enforcement action.”
The paper, which was published on Monday (19 March), announced the creation of new legislation to introduce a criminal offence to punish those found to have committed wilful or grossly reckless behaviour in relation to a pension scheme.
The government is also giving the watchdog powers to disqualify company directors, introducing new punitive fines, and will also consider if the introduction of a targeted mandatory clearance process for specific corporate transactions is necessary in the coming months.
Esther McVey, secretary of state for Work and Pensions, will be questioned today (21 March) in parliament by the Work and Pensions committee on the lessons from Carillion, especially in respect of the just announced white paper.
maria.espadinha@ft.com
