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Carillion directors 'refused to give an inch' to trustees over pension funding

20 February 2018

The trustees of the main Carillion pension schemes wrote to The Pensions Regulator (TPR) in 2010 and again in 2013 requesting "formal intervention" to require the company to pay more in deficit recovery contributions. TPR opened a formal investigation into Carillion on 18 January 2018, three days after it went bust.

Carillion directors 'contemptuous of their pensions obligations'

Rt Hon Frank Field MP, Chair of the Work and Pensions Committee, said:

"These letters suggest the Carillion directors were contemptuous of their pensions obligations. Over two successive 15 month negotiations they refused to give an inch to the pension schemes.

Their private pleading that the company could not afford more was in stark contrast to the rosy picture – and bumper dividends – being presented to the outside world. Richard Adam, the longstanding Finance Director, has particular questions to answer.

With characteristic alacrity, the Pensions Regulator started its arduous process of chasing money down from Carillion a few days after it was formally announced there was no money left. I can only assume – and hope – they are going after some of those very generous bonuses."

2010 – 'bullishness' in public did not reflect private negotiating position

  • Despite a recent "bullish results announcement" and a 12% increase in dividends, the company maintained it could not afford to pay more than £23 million per year for the pension deficit. The trustees had advice that a minimum of £35 million was affordable.
  • The company pushed for a 15 year recovery plan. Anything more than 10 years is considered exceptional.
  • The company proposed "less prudent assumptions and methods" than had been used in previous scheme valuations.
  • Negotiations got no further than £25 million per year, which the trustees considered "not acceptable" and "far less than … reasonable".

2013 – 'take or leave it'

The 2013 letter said that an "impasse" had been reached in negotiations between the trustees and the company.

  • The trustees had proposed contributions of £65 million per year over 14 years to meet a deficit they estimated at £770 million.
  • The company has made a "take it or leave it" offer of just £33.4 million per year over 15 years. The company pushed for more optimistic assumptions which resulted in lower estimates of the deficit.
  • The trustees said the company had got weaker in recent years and wanted that reflected in calculations. This was rejected by the company.
  • Carillion had "made no move from its original position throughout the whole negotiation process". The trustees wrote to the regulator after the statutory 15 month negotiation period had passed.
  • The trustees said that the pension schemes were "falling behind relative to other Carillion stakeholders" and "taking a disproportionate amount of risk".

TPR – action once the company had gone bust

  • TPR opened an anti-avoidance investigation into Carillion on 18 January 2018. The company went into insolvency on 15 January, with only £29 million of cash left and a pensions deficit liability of around £2.5 billion.
  • TPR had "made it clear" they were "prepared" to use their powers to impose a schedule of pension contributions under section 231 of the Pensions Act 2004. They did not, however, use any formal powers regarding Carillion at any stage while the company was solvent.
  • TPR revealed in October 2017 that they have used that power just once.

Further information

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