The Pension Protection Fund (PPF) and the Pensions Regulator (TPR) are both on alert as engineering firm Carillion faces mounting financial difficulties.
Carillion’s defined benefit (DB) pension schemes had a total shortfall of £804m (€905.4m) at the end of 2016, according to the company’s latest annual report. Carillion paid £46.6m into the scheme during that year in accordance with a funding plan agreed in 2014, which stands to run until 2029.
In October, the company agreed to defer “certain pension contributions” as part of a short-term funding arrangement with lenders.
The London-listed company has been seeking to offload parts of its business after making a £1.1bn loss before tax in the first half of 2017. Carillion’s net debt rose to £571m and its underlying profits fell significantly during the period, according to its half-year report, published in September.
The company – a major supplier of services to the UK government – is discussing debt restructuring and recapitalisation options with its lenders and shareholders.
According to the Financial Times, ministers from several government departments met yesterday to discuss the situation, and more officials will meet with the company, TPR and the PPF today.
A spokeswoman for the PPF confirmed that the lifeboat fund was involved. She said: “The PPF is aware of the discussions between the company, government and banks and, along with the trustees and TPR, will act as it always does to protect the interests of Carillion scheme members and levy payers.”
A spokesman for TPR declined to comment on meetings with the company or ministers, saying: “We have been and remain closely involved in discussions with Carillion and the trustees of the pension schemes as this situation has unfolded. We will not comment further unless it becomes appropriate to do so.”
BHS owner convicted for failing to supply information to TPR
Dominic Chappell, the majority owner of Retail Acquisitions Limited, has been convicted of failing to hand over information to TPR, in relation to the collapse of high street chain BHS. Chappell’s company bought BHS for the nominal sum of £1 in 2015. It fell into administration a year later.
“This conviction shows that… anyone who fails to co-operate with our information notices risks getting a criminal record.”
Nicola Parish, TPR
Chappell was found guilty at Brighton Magistrates’ Court yesterday of failing to supply information relating to the sale and collapse of BHS, despite multiple requests from TPR. He faces a financial penalty.
Sentencing was originally scheduled for 19 January, but this has now been adjourned, according to a notice from TPR on 17 January.
According to court reports, Chappell had claimed he was unable to respond due to workload, restricted access to BHS’ offices following the administration, and poor health.
In a statement, Nicola Parish, TPR’s executive director of frontline regulation, said the regulator was “satisfied” with the ruling.
“The power to demand specific information is a key investigative tool in our work to protect people’s pensions,” she said. “This conviction shows that the courts recognise its importance and that anyone who fails to co-operate with our information notices risks getting a criminal record.”
Separate anti-avoidance action against Chappell regarding the BHS pension schemes was ongoing, the regulator said. TPR last year secured a £363m payment towards the schemes from BHS’ former owner Sir Philip Green.
UK state pension ‘could run out of money by 2035’
The UK is likely to run out of money to fund its state pension within 20 years unless contributions are increased, according to the government’s actuary.
The Government Actuary’s Department (GAD) has said National Insurance contributions – which workers pay to fund the state pension and other benefits – would have to rise as the population ages.
Martin Clarke, the government actuary, said in a review of the National Insurance Fund that a growing pensioner population would put pressure on the fund despite plans to raise the state pension age.
In addition, reforms to the state pension had made it more generous and therefore more costly.
Lastly, Clarke highlighted the UK’s ‘triple lock’ policy, whereby state pension payments increase annually in line with the higher of earnings growth, inflation, or 2.5%.
The Conservative Party had aimed to scrap the triple lock but was forced to retreat on this idea when it struck a coalition agreement with the Democratic Unionist Party following last year’s election.
In 2014 and 2015 the UK Treasury topped up the National Insurance Fund, and Clarke warned such contributions would have to continue. However, current rules limit how much the Treasury can contribute, meaning it would only delay the fund running out of money, he said.
The GAD report was published in October but only hit national headlines this week.
Calum Cooper, partner at consultancy firm Hymans Robertson, said the current state pension system was “dangerously unsustainable”.
“The chances are that our working landscape will look radically different over the next few decades,” he said. “Life expectancy is continuing to rise faster than the state pension age meaning many people will feel compelled to continue working well into ‘retirement’.”
Cooper added that the automation of jobs across different industries could also have a “devastating impact”, reducing worker contributions just as more people request government support.