Politicians looking into the collapse of Carillion have hit out at the bankrupt company’s management and the UK’s Pensions Regulator (TPR) for their roles in the demise of several pension schemes connected to the firm.

Carillion was forced into liquidation on 15 January with a number of pension schemes it sponsored entering the assessment period for entry into the Pension Protection Fund. The combined pension deficit was £804m (€911.6m) according to the company’s last annual report.

The UK parliament’s Work and Pensions Select Committee and Business, Energy and Industrial Strategy Committee launched a joint inquiry into the collapse soon afterwards and have requested dozens of documents and correspondence records dating back more than a decade. Letters from the Carillion pension trustees to TPR were published this morning by the joint inquiry and demonstrated the strained relationship between the trustees and the employer.

Frank Field, chair of the Work and Pensions Select 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.”

Frank Field MP

Source: UK Parliament

Frank Field MP

TPR chief executive Lesley Titcomb told the inquiry the regulator had “robustly supported the trustees during negotiations about scheme funding” and made clear to the trustees and employer that it would use enforcement powers if agreement was not reached. The regulator did not take any formal enforcement action until after Carillion collapsed, but in a statement today it argued that the threat of action had persuaded the company to agree to higher contributions.

But Field criticised the regulator, saying it “started its arduous process of chasing money down from Carillion a few days after it was formally announced there was no money left”.

Under UK pensions rules, trustees and employers have a maximum of 15 months to agree a funding arrangement following the date of a formal actuarial valuation. These are typically carried out every three years.

Following a valuation of Carillion schemes as of 31 December 2008, the company and trustees failed to agree on employer contributions. The trustees argued for annual deficit reduction contributions of £35m “as a minimum”, following an independent covenant assessment, but the company refused to pay more than £23m.

The trustees wrote to TPR in March 2010 requesting assistance to settle the dispute. They said there was a “difference of opinion” about what Carillion could pay, given “bullish” results and a 12% increase in shareholder dividends.

The situation flared up again in 2012, prompting the trustees to request regulatory assistance again in 2013. This time the company offered payments of £33.4m a year for 15 years from 2014, compared to the trustees’ demand for £65m a year from 2013. The trustees also warned that the pension schemes were “falling behind relative to other Carillion stakeholders” and “taking a disproportionate amount of risk”.

Carillion vans

Sir Philip Green urged to get regulatory sign-off on any sale of Arcadia

Frank Field has separately written to British businessman Sir Philip Green urging him to seek regulatory approval for any sale of his UK high street retailers.

Sir Philip is the former owner of BHS, a department store chain that collapsed into administration a year after he sold it for the nominal fee of £1. He later agreed to pay £363m into BHS’ pension scheme, following an intervention from TPR.

Recent UK press reports have speculated that Sir Philip was considering selling his Arcadia business – which includes fashion chains such as Burton and Topshop – to a Chinese company. He has denied the rumours.

In his letter, dated 19 February, Field said: “Members should continue to expect that pensions promises made to them during your tenure wil be honoured in full by any future owner. The sale of the company should not be materially detrimental to the ability of the schemes to meet those promises.”

He asked Sir Philip to commit to seeking clearance from TPR and to publish any such application to the regulator “in the interests of transparency”.

Under UK rules, employers can seek approval from TPR ahead of corporate activity to ensure that pension fund issues are being adequately addressed. The Work and Pensions Select Committee has argued for this to become mandatory ahead of any merger or acquisition event involving UK companies.