Carillion’s pension scheme trustees began urging the collapsed government contractor’s “contemptuous” directors to provide more money to plug a yawning deficit in 2010 but were repeatedly refused, it has been claimed.
Letters released by MPs conducting an inquiry into Carillion also reveal that trustees asked the Pensions Regulator (TPR) in vain to force the company’s directors to pump more money in.
Frank Field, who chairs the work and pensions select committee, said the evidence showed directors reserved tens of millions of pounds to pay dividends but “refused to give an inch” to improve the funding of 13 retirement schemes with nearly 30,000 members.
Documents charting the pension negotiations reveal that:
Trustees believed the schemes needed £65m a year.
Carillion directors made a “take or leave it” offer of £33.4m.
The refusal to compromise led to an “impasse”.
Trustees wanted “formal intervention” from the regulator.
TPR threatened to impose higher payments but did not.
Evidence submitted to a joint inquiry by MPs on the business committee and the work and pensions committee detail concerns among Carillion’s retirement scheme trustees stretching back to 2010.
Trustees believed a contribution of £35m a year was affordable in 2010, pointing to a “bullish” financial results statement by the company and a 12% increase in dividend payments to shareholders. But the company initially offered £23m and refused to go above £25m, which the trustees considered “not acceptable”.
“These letters suggest the Carillion directors were contemptuous of their pensions obligations,” said Field. “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.”
During a second round of pension contribution talks in 2013, trustees asked the company to pay in £65m per year over 14 years to meet a deficit they estimated at £770m.
But the request was met with a “take it or leave it” offer of £33.4m a year over 15 years, with Carillion refusing to acknowledge that the deficit was any greater than £530m.
The chairman of the trustees, Robin Ellison, wrote to TPR, in light of the firm’s deteriorating cash flow, urging it to step in after Carillion rejected a compromise deal that would see it pay £39m per year and agree to value the deficit at £605m. Since Carillion’s collapse, Ellison has estimated the pension schemes’ deficit at £990m.
He told TPR that pensioners were “taking a disproportionate amount of risk” under the company’s proposals and complained that directors had made “no move” from their original offer.
He wrote: “To conclude, to the great concern of the trustee, we believe we have now reached an impasse with the sponsor [Carillion] and believe no further progress will be made without the intervention of the Pensions Regulator.”
In evidence submitted to the inquiry, the under-fire regulator said it “made clear” that it was prepared to impose a new payment regime but ultimately did not use its powers to do so.
TPR, which will give evidence to the inquiry this week, insisted on Monday that its warnings eventually led to a “significant increase” in pension contributions, without saying how much.
Field, who has previously criticised the regulator for a perceived lack of action, aid: “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 [paid to directors].”
The Pension Protection Fund, the government’s retirement scheme lifeboat, is expected to absorb a liability of about £900m, with members facing payout cuts of up to 15%.
The row over pensions came as the government’s Insolvency Service said a further 942 jobs would be saved and 152 more made redundant. It has now found new employment for 7,610 people, but redundancies have hit 1,141 and about 9,000 jobs are still hanging in the balance.