A defined benefit (DB) scheme with a £580 million deficit could be set to fall on the lifeboat Pension Protection Fund (PPF) with news this morning that construction giant Carillion is to go into liquidation.
However, pension experts have moved quickly to affirm the PPF is strong enough to absorb the Carillion scheme and that members should be assured their pensions are protected.
The BBC has reported this morning that Carillion faces liquidation after emergency talks with the government last week failed to reach a deal that would save the company.
Carillion provides a number of vital services for the government including the construction of the HS2 rail line and running contracts across the NHS and in education.
A bailout by the government had been opposed in some quarters, with Liberal Democrat leader Vince Cable arguing it would ‘privatise the profits and nationalise the losses’.
However, according to the BBC the government will provide funding purely to maintain the public services run by Carillion.
Last week Sky News revealed Carillion was in talks with banks to try and secure new funding. It was estimated it needed around £300 million.
Carillion’s pension deficit is around £580 million.
Hargreaves Lansdown’s head of policy Tom McPhail said the PPF had enough funding to absorb the Carillion scheme.
‘Members of the Carillion scheme will be understandably anxious about their pensions,’ he said, ‘Assuming the company goes into administration and the scheme is taken over by the PPF, retired members will continue to receive their pensions in full, while those yet to reach retirement will see cuts of typically between 10% and 20%; there’ll be an initial reduction of 10% when they reach retirement, plus they may lose some of their inflation proofing and higher earners may have some of their pension capped. The current cap on pension payments is £34,655.05, though for long serving employees it can be higher.’
‘The reported Carillion scheme deficit of £580 million looks big, but thanks to prudent management in recent years the Pension Protection Fund currently has a surplus of over £6 billion so they can absorb this hit if they have to. Scheme members can expect the administrators and the PPF to work together to ensure there is continuity of payments.’
Royal London director of policy Steve Webb said: 'Although there is a big shortfall across the Carillion pension schemes, the PPF is financially strong and will be able to pay out pensions in line with its normal rules. The deficit in the Carillion schemes will not sink the pensions lifeboat’.
In a statement the chairs of the Carillion pension schemes said: 'This is obviously very disappointing news. The trustees have been very closely involved in all discussions with stakeholders over the last few months, working to protect members’ interests.
'We will now work with PwC and the PPF to deliver detailed information to members about how their benefits will be affected, and provide them with all the support that we can.'
On Friday Sky reported The Pensions Regulator (TPR) Pension Protection Fund (PPF) and Carillion’s pension trustees, along with senior civil servants for the Cabinet Office, had held an emergency meeting.
Prior to today’s development it had been reported Carillion wanted to look at a deal with its creditors, where by it would swap around £1 billion of borrowings for new shares in the company.
This would have made the pension scheme, or PPF, a major shareholder.