Carillion has been accused of trying to “wriggle out” of its pension obligations for a decade as new evidence given to MPs revealed the collapsed construction group’s pension shortfall near doubled to nearly £1bn in three years.
On Monday, the Work and Pensions select committee published evidence that the Pensions Regulator was alerted to problems with the company’s main pension plans as long ago as in 2008, when the scheme’s trustees and the company were locked in a funding dispute.
In written evidence to the committee, Robin Ellison, chair of Carillion pension scheme trustees, said the trustees had tried to agree higher funding contributions from the company in 2008, 2011 and 2013.
“Carillion made it clear, repeatedly, to the Trustee in valuation discussions (eg in correspondence shared with TPR [Pensions Regulator] for the 2011 and 2013 valuations) that it considered it was constrained in agreeing higher contributions due to constraints in cash flow connected with its business model,” said Mr Ellison, who represents Carillon’s six main schemes.
“The Trustee (and the former trustees of the schemes in the case of the 2008 valuations) reported this to TPR and TPR became involved in the discussions.
“Ultimately, for all three valuations, TPR decided not to exercise its powers.”
About 28,000 members of Carillion’s 13 pension schemes are facing cuts to their retirement benefits after the company was placed in compulsory liquidation this month.
When it collapsed, the schemes’ pension funding shortfall was reported to be £587m on an “accounting basis”, or the valuation used for annual company reports.
In his letter to the committee, Mr Ellison revealed that the funding shortfall for five of the six pension funds he chairs widened from £508m in 2013 to about £990m in 2016 when measured on a “technical provisions” basis. This is the measure used to set contributions from the employer every three years.
However, the “buyout” deficit, or the measure used by the Pension Protection Fund to value a creditor claim for the pension debt, is nearer £2bn, according to Mr Ellison.
Frank Field, chair of the select committee, said Carillion cited cash flow problems for not making higher contributions in 2011 and 2013, but paid £70m in dividends in both years.
“It’s clear that Carillion has been trying to wriggle out of its obligations to its pensioners for the last 10 years,” said the Labour MP.
“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.”
Mr Field said that “once again” the regulator had questions to answer over its actions in pension funding disputes.
“When 10 years later the company collapses with £29m in the bank and £2bn in pension liabilities it doesn’t look good for them,” said Mr Field.
The Work and Pensions and Business select committees will jointly hear oral evidence on Carillion’s collapse on Tuesday.
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