Letters from trustees of the main Carillion pension schemes to the Pensions Regulator suggest that directors of Carillion were “contemptuous” of their pension obligations, according to chair of the Work and Pensions Committee, Frank Field.
The trustees wrote to the regulator in 2010 and 2013 requesting formal intervention to require the company to fork out more in deficit recovery contributions.
The 2010 letter shows that Carillion proposed that the past service deficit in the schemes should be met over 15 years, noting that this exceeds the 10-year maximum that the watchdog suggests is appropriate.
The letter also states that despite a 12 per cent increase in dividends and a “bullish” results announcement, the company maintained it could not afford to pay more than £23m a year for the pension deficit. However, it said that with regard to a covenant report commissioned by the six schemes, the trustees were advised that a minimum of £35m was affordable.
Furthermore, it showed that Carillion stated no more than £25m each year was available towards funding the schemes, an amount deemed unacceptable and “far less than what the trustee forum thinks would be a reasonable overall annual contribution”.
The 2013 letter from Robin Ellison, chair of the Carillion trustees and head of strategic development for pensions at law firm Pinsent Masons, said an “impasse” had been reached in negotiations between the company and the trustees.
The trustees had proposed contributions of £65m a year over 14 years to meet a deficit they estimated at £770m.
However, it said the company proposed a “take it or leave it” offer of £33.4m a year over 15 years.
The trustees said the covenant of the sponsor had weakened since 2008, but the letter said the sponsor disputed this. The letter also stated that the company had “made no move from its original position throughout the whole negotiation process”.
The trustees wrote to the regulator after the statutory 15-month negotiation period had passed.
The Pensions Regulator opened an anti-avoidance investigation into Carillion on January 18 2018.
A letter from the regulator to the select committee, dated February 12 2018, said that during the past 10 years the regulator “made clear to the trustees and employer that we were prepared to use our s231 powers when they were unable to reach agreement in respect of an overdue valuation”.
Field 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.”
He added: “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.”
Responding to Field's comments, a spokesperson for the Pensions Regulator said: “When the trustees wrote to us in 2013 to say they could not agree funding plans with the company, we did intervene by threatening to use our powers unless a funding plan was agreed.
"Our intervention resulted in a significant increase in the amount of money the company was prepared to pay into the scheme. We believed this was reasonable based upon our understanding of the company’s trading strength as set out in its audited accounts," the spokesperson added. “The investigation we have now launched is looking at whether there are grounds to use our anti-avoidance powers.”
The select committee has also published a letter dated February 9 2018 from Ellison, saying that the company was supportive of the principle of the schemes derisking as they became more mature.
However, it said that despite this agreement in principle, “the level of funding of the schemes, and the level of contributions the employers were paying to address the deficits, limited the extent to which derisking could be implemented in practice”.
The letter said that “if the employers had paid higher contributions, the trustee could have speeded up the derisking programme”.
