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Carillion pensions flagged as ‘at risk’ last autumn

Pensions crisis

Carillion pensions flagged as ‘at risk’ last autumn

PPF emergency scheme says failed company had been ‘on its radar’ for some time

PPF chief Alan Rubenstein: 'By autumn 2017, [the Carillion scheme] was on the watch list' © Reuters

Carillion’s 27,500 member pension scheme was placed on a risk list by UK authorities in autumn last year, as the troubled construction company was still being awarded government contracts.

Carillion entered insolvency on Monday with the Pension Protection Fund, the industry scheme that pays compensation to pension plan members if a company collapses, preparing to take a £800m-£900m hit from absorbing the group’s 13 retirement funds.

Alan Rubenstein, chief executive of the PPF, said the Carillion scheme had been “on the radar” for some time but concerns escalated in the second half of last year.

“We and the Pension Regulator work together to evaluate schemes that pose a risk,” said Mr Rubenstein in an interview with the Financial Times.

“We have a watch list of various categories of schemes that the regulator is concerned about. By autumn 2017, [the Carillion scheme] was on the watch list.”

Mr Rubenstein said schemes are placed on the watch list if it is thought they might come to the PPF, typically following the insolvency of the sponsoring employer, or if “there are concerns about their financial strength or other potential causes for concern”.

Mr Rubenstein did not disclose the date in autumn that concerns about Carillion’s schemes were officially escalated. But on September 29 the company gave its second profit warning after a first in July.

The Pensions Regulator said: “We closely monitor the risks in the pensions landscape and have had heightened engagement with the company and trustees since July’s profit warning to ensure that members and the PPF are protected to the greatest extent possible.”

Carillion’s pension scheme trustees declined to comment.

Ministers are already facing questions about why they awarded Carillion £2bn of contracts after the company issued the series of profit warnings in 2017.

Despite the second profit warning in September, another transport contract for the electrification of the London to Corby rail line was awarded on November 6.

Mr Rubenstein revealed that before its insolvency this week, Carillion had held discussions with the PPF about ways to restructure its pension debt, estimated at £587m in its 2017 interim results.

Rarely approved deals known as Regulated Apportionment Arrangements (RAA) allow a troubled company to transfer its pension liabilities to the PPF without becoming insolvent, the normal requirement.

“When it came to the question of ‘could there have been an RAA done to save Carillion’ the answer is possibly,” said Mr Rubenstein.

“But we will never really know because in all the time we were in discussions with them, there was never a viable proposal put to us.”

The Pensions Regulator added: “While we did not receive a formal RAA application from Carillion, a wide range of restructuring solutions were discussed between the company and its creditors.”

Mr Rubenstein said that if banks and governments had thrown Carillion a financial lifeline last week there might have been an opportunity for Carillion to restructure its pension debt.

“What brought down Carillion in my view was they simply ran out of funding,” said Mr Rubenstein.

“By the time we got to last week, when they were in discussions with the banks about short-term funding, clearly if they had been able to get over that hurdle with the banks, then there would have been a three-month window of opportunity in which we could have looked at a potential restructuring proposal,” said Mr Rubenstein.

“But of course, as we know, government weren’t willing to extend finance and the banks weren’t willing to extend finance, so we never got to that stage.”

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