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).
The Pensions Regulator's bluff has been called too many times.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.
"In the past the balance between members and employers was not always right. The report underlines the significant changes already made at TPR but there is more work to do."
Ms Titcomb argued that the regulator is now a very different organisation.
She said: "We are clearer about what we expect, quicker to intervene and tougher on those who do not act in the interest of members.
"We have reinforced our regulatory teams on the frontline and are embedding a new regulatory culture.
"We sought stronger and clearer powers on scheme funding from [Department for Work & Pensions] DWP and we are working with the government on how to implement the changes in the white paper, alongside our wider changes to how we regulate."
Oliver Morley, chief executive of PPF, said members of the Carillion pension schemes continue to be protected by the PPF.
He said: "While the collapse of the company has resulted in the largest claim to date on the PPF, we remain in a strong position. Members of the pension schemes will be some £800m to £900m better off as a result of our protection.”
According to Nathan Long, senior pension analyst at Hargreaves Lansdown, The Pensions Regulator has coped admirably with the enormous task of bringing in ground breaking auto-enrolment rules to revolutionise the way we save for retirement.
He said: "This heavy workload does not absolve them from heavy criticism from the Work & Pensions select committee for allowing the Carillion pension schemes to be hollowed out on their watch.
"Referring to the regulator’s challenge as like a ‘paper tiger’ tells you all you need to know about how effective the committee perceive them to be.
"Stopping short of a recommendation to disband the regulator, findings that a 'tentative and apologetic' approach is ingrained at the regulator, and with doubts about the current leadership, suggests that the heavy scrutiny will continue at least a little while longer.
"The proposal for a closer working relationship with the Financial Conduct Authority looks timely and may help deflect some of the heavy fire."
On auditors, another area of focus for MPs in the Carillion collapse, MPs are recommending the government to refer the statutory audit market to the Competition and Markets Authority (CMA).
During the inquiry, it was revealed that the Big Four financial services firms - KPMG, EY, PwC and Deloitte – earned £7m a year from Carillion.
The terms of reference of that review should explicitly include consideration of both breaking up the Big Four into more audit firms, and detaching audit arms from those providing other professional services, the MPs said.
maria.espadinha@ft.com
