The Pensions Regulator (TPR) made "hollow threats" and "failed in all its objectives" on Carillion, a Parliamentary inquiry into the collapse of the contractor concluded.
In a joint report from the Work & Pensions and the Business, Energy & Industrial Strategy (BEIS) committees', MPs said the regulator's problem won't be solved only with new powers, and the watchdog needs a "cultural change in an organisation where a tentative and apologetic approach is ingrained".
The report stated: "We are far from convinced that The Pensions Regulator's current leadership is equipped to effect that change."
Carillion had 13 final defined benefit (DB) in the UK with more than 28,500 members, and an aggregate deficit for PPF purposes of around £800m.
It is expected that 11 of these plans will ultimately end up in the pensions lifeboat, with the vaste majority of these already in assessment at the Pension Protection Fund (PPF).
After unsuccessful talks with its lenders and the UK government, Carillion made an application on 15 January to the High Court for compulsory liquidation.
MPs said as a result of the collapse of the company, "scheme members will receive reduced pensions," and the PPF and its levy payers "will pick up their biggest bill ever".
According to the report, Carillion was run so irresponsibly that its pension schemes may well have ended up in the PPF regardless, but the regulator should not be spared blame for allowing years of underfunding by the company.
The regulator was involved in discussions with the contractor and the pension scheme trustees over a decade, during which it "saw the wholly inadequate recovery plans and had the opportunity to impose a more appropriate schedule of contributions while the company was still solvent", MPs argued.
The watchdog threatened to use its powers seven times during 2013 and 2014, but never enforced warnings.
The Pensions Regulator threatened to use section 231, which gives 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.
The report stated: "In 13 years of defined benefit scheme regulation, The Pensions Regulator has issued just three warning notices relating to its section 231 powers, and has not seen a single case through to imposing a schedule of contributions.
"Though it warned Carillion that it was prepared to do, it did not follow through with this ultimately hollow threat. The Pensions Regulator's bluff has been called too many times."
The committees, however, didn’t make any recommendations regarding the pensions watchdog, since the Work & Pensions committee will further consider The Pensions Regulator in its ongoing inquiry into the defined benefit pensions white paper.
Lesley Titcomb, The Pensions Regulator's chief executive, has responded to the MPs accusations.
She said: "We actively seek to learn lessons to better protect members of pension schemes.