Pension funding shortfall approximately £900 million
This will be Ms McVey's first appearance before the Committee, and will be an opportunity to question her on the proposals in the recently published White Paper and how they might work to prevent another Carillion. Mr Clark will also be questioned on the Department for Business, Energy and Industrial Strategy's new consultation on corporate governance.
Following publication of the White Paper on Defined Benefit (DB) pension schemes and ahead of evidence on Carillion on Wednesday morning, the Work and Pensions Committee publishes a series of correspondence covering The Pension Regulator's (TPR) actions and use of its powers in relation to Carillion.
Carillion's defined benefit pension schemes were carrying an estimated £2.6bn buyout value deficit on the company's collapse on January 15 2018.
The series of correspondence between TPR and Carillion, and a set of associated board minutes from the 2011 scheme evaluation process expose TPR's weak position. Most of the TPR's negotiations were conducted via PWC, who advised Carillion's directors on managing their pensions liabilities from 2012 to 2017.
In the autumn of 2017, they became advisers to the trustees, and were also advising Government on its dealings with Carillion. In their current role as Special Managers, PWC is tasked with trying to salvage some funds for the PPF, which is likely to pick up all but two of Carillion's 13 pension schemes and has estimated the funding shortfall for the schemes at around £900 million.
Correspondence with The Pensions Regulator
The Committee previously published board minutes ( PDF 369 KB) regarding this same 2011 triennial pension scheme evaluation, where it appears the Trustees are weighing up accepting a reduced offer of £42 million a year against handing over to TPR, with concern about how long that would take:
- TPR appears to be becoming sympathetic to the Company's position based on a presentation from Richard Adam – "no pushback from TPR"
- "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 2 to 3 years"
- "The Trustee therefore needed to consider whether it was willing to reduce its minimum position or whether effectively it should hand over to TPR in the hope that the matter would be referred to the Determinations Panel which would reach the same conclusion recognising the length of time this could take to enforce. In the meantime the existing schedules of contributions would remain in place."
The Committee is also publishing their own correspondence with TPR regarding Carillion. In evidence to the Committees on 22 February, TPR defended its approach to the Carillion schemes, arguing that "the threat of using [its] powers under section 231 of the Pensions Act 2004 may have contributed to the sponsor and trustees finally agreeing a deficit recovery plan", albeit well after the statutory 15 month deadline.
Credible deterrent needed
However, Work and Pensions Chair Frank Field noted:
"that plan was back-loaded and followed the sponsor's wishes for the crucial first few years before it would be superseded by a subsequent triennial valuation. I struggle to see how a power that has only been deployed once in 13 years can possibly act as a credible deterrent to wilful scheme underfunding"
and "The defensive and under-prepared performance you and your senior colleagues gave before the joint committee certainly gave me no assurance that the TPR leadership is equipped to bring about the necessary cultural change. It would hardly have scheme sponsors quaking in their boots and it is difficult to imagine TPR emerging victorious from negotiations with a ruthless American private equity firm."
TPR's response makes clear that, in fact, the s231 has never yet been deployed, the one existing case is still in progress. It includes reference to TPR’s request for that power to be strengthened, as has subsequently been proposed in the White Paper. The form that strengthening will take, and whether it will result in TPR using that enhanced power, remain to be seen.
Our whole system of corporate accountability a mess
Rt Hon Frank Field MP, Chair of the Committee, said:
"PWC had every incentive to milk the Carillion cow dry. Then, when Carillion finally collapsed, PWC adroitly re-emerged as butcher, packaging up joints of the fallen beast to be flogged off. For this they are handsomely rewarded by the taxpayer.
They claim to be experts in every aspects of company management. They're certainly expert in ensuring they get their cut at every stage."
Commenting on the new DBEIS consultation on corporate governance, Rt Hon Frank Field MP added:
"The lessons from BHS, Carillion and the two Philip Greens is that our whole system of corporate accountability is in a mess. The greedy and complacent can take a one way bet with the livelihoods of their workers, their smaller suppliers and the taxpayer.
I welcome any move that holds individuals more accountable for their conduct, and strengthens the hand of the little guy as a result."
Wednesday 21 March 2018, Wilson Room, Portcullis House
- The Rt Hon Greg Clark MP, Secretary of State for Business, Energy and Industrial Strategy
- The Rt Hon Esther McVey MP, Secretary of State for Work and Pensions
- Charlotte Clark, Director, Private Pensions and Arm's Length Bodies
- Niall Mackenzie, Director, Infrastructure & Materials
At approximately 10.30 am
- Marissa Thomas, Partner, Head of Deals, PwC
- David Kelly, Partner and Special Manager, PwC
- Gavin Stoner, Partner, Restructuring and Pensions, PwC
Image: Creative Commons (Elliot Brown)