Carillion "trying to wriggle out of pension obligations for last 10 years"

29 January 2018

The Work and Pensions Committee publishes a response from Robin Ellison, Chair of Carillion DB Pension Scheme trustees, to its first request for an account of the pension scheme on 17 January.  Mr Ellison will give evidence in person to the Carillion joint inquiry next Tuesday 30 January 2018.

Chair's comments

Commenting on the Trustee's response, Rt Hon Frank Field MP, Chair of the Work and Pensions Committee, said: 

"It’s clear that Carillion has been trying to wriggle out of its obligations to its pensioners for the last 10 years. The purported cash flow problems did of course not prevent them shelling out dividends and handsome pay packets for those at the top.

This culminated in negotiating deficit contributions away entirely last autumn to enable more borrowing. Remarkably, this was endorsed by the trustees and the Pensions Regulator.
Once again, TPR has questions to answer. They have been sniffing around Carillion - at the trustees’ behest - since at least 2008, though it is not apparent to what effect.

When ten years later the company collapses with £29 million in the bank and £2 billion in pension liabilities it doesn’t look good for them."

Brief analysis of the letter

The Company

  • Have been falling short of the trustee's expectations since 2008, citing cash flow problems 
  • Have only recently given them more info
  • The trustees failed to come to an agreement over the "valuations" in 2008 and 2011 because the trustee was "seeking to take a more prudent approach to funding than the company considered it could afford". The scheme had been stressing its intention to de-risk since 2008.
  • The company cited cash flow problems as reasons for not making higher contributions in 2011 and 2013. They paid £70m+ in dividends both of those years.
  • On the 2016 valuation, the trustee engaged with Carillion "very early" in anticipation of an increased deficit but also "in the light of its experience when negotiating company contributions in previous years".
  • Until May 2017, "the information available to the trustee and the covenant assessor was […] largely that in the public domain". The trustee did not have the power to ask for more. They were kept in the dark about the state of the company.
  • The letter says the trustee received updates from Carillion that included "events potentially notifiable to the Pensions Regulator".

The deficit

The deficit (of the main five schemes) is "nearer £2bn" on a buy-out basis. That is the company’s pension liability. The 2016 valuation was coming up with a technical provisions deficit of c£990m. 

The Pension Regulator

Have been involved since 2008, but there is little sign of active intervention
Dividends, borrowing, bonuses continued apace despite the trustee's concerns

  • TPR received a report from the trustee on the 2008 and 2011 valuations and became involved in discussions.
  • The trustee "understands TPR has had regular meetings with Carillion since the discussions on the 2008 valuations".
  • TPR were aware of the cash flow excuses for insufficient contributions in the 2011 and 2013 valuations.
  • TPR worked closely with all parties on the September 2017 deferral of contributions. 

The deferral

The company could not borrow in September 2017 unless it secured agreement to a deferral of pension contributions. The trustee - and TPR - agreed on that basis

  • The trustee agreed to a deferral of pension contributions in September, to be repaid in full with interest by January 2019.
  • They agreed to do this because "the banks saw the Trustee agreeing to the request as an integral part of them committing to providing new money to Carillion".
  • The trustee only "secured terms in relation to information and consent requirements commensurate with equivalent stakeholders in the business" as part of these negotiations.

Further information

Image: iStockphoto

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