Carillion ignored warnings about pensions, documents reveal

Pensions advisers repeatedly warned that Carillion was prioritising shareholder dividends over the funding of its pension scheme years before the government contractor’s collapse, according to documents released by the work and pensions committee.

The committee, whose members will question former Carillion directors at a hearing on Tuesday, released new evidence hours after the number of confirmed job losses at Carillion hit 829, with uncertainty persisting over a further 17,500.

The MPs published documents that they said indicated “long-term indifference” by former directors towards the company’s pension obligations, leading to “chronic underfunding” of a scheme relied on by 27,000 members.

The reports, written by a company advising Carillion’s pension trustees, contain multiple warnings that its plan to plug its deficit stretched over too many years and that the firm diverted money to dividends and debt interest rather than into its retirement schemes.

Labour MP Frank Field, who chairs the work and pensions select committee, said: “Clear warning signs were evident several years ago in the assessments of the company’s commitment to its pension schemes. Yet as late as 2015, [former finance director] Richard Adam, one of the directors appearing before us tomorrow, gave a farcically optimistic report to the pension trustees.”

The committee published a series of documents written by Gazelle Pension Advisory Services, which was advising trustees of a Carillion pension scheme estimated to have a £990m deficit.

A report produced by Gazelle for the trustees in 2012 warns that “historically, Carillion has subordinated the pension schemes to other demands on cashflow, in particular repaying acquisition debt, a progressive dividend policy and equity payments into PPP [public-private partnership] projects”.

The following year, Gazelle flagged up a “relative disparity” between the assessment of the company’s health it was giving to City shareholders and what it was telling pensioners. It said this meant that an increase in pension payments was spread over too many years, leaving retirees bearing “a disproportionate share of risk in the business”.

In an April 2016 report for the trustees of one of Carillion’s 13 pension schemes, Gazelle highlighted that City speculators were betting that the company was in trouble by short-selling their shares.

A final report in May 2017 warned that Carillion’s debts had reached a level that meant it could not “counter material financial shocks or disappointments” and pointed out that its pension deficit was now equivalent to the company’s entire stock market value.

Gazelle advised that only if Carillion “cuts the dividends or produces an alternative plan to reduce debt will the [pension] sponsor constraints be eased”.

Former Carillion directors are expected to face lengthy questioning at evidence sessions on Tuesday, at the beginning of a joint inquiry by the work and pensions select committee and the business, energy and industrial strategy committee, chaired by Labour’s Rachel Reeves.