Latest development in the Carillion pensions saga is that the Chair of the Trustees of the Schemes – Robin Ellison – an eminent pension lawyer and expert – is appearing before the Works and Pension Committee today (Monday 29th January) to face questions on the Trustees’ actions.
He is reported to have said that The Pension Regulator was aware of difficulties as early as 2008, when the Trustees and the Company were struggling to agree the level of contributions that the Company could afford to pay. Carillion raised cash flow difficulties for not coming up with the amount the Trustees wanted. The same excuse was used in the subsequent 2011 and 2014 valuation/funding cycles.
This might have made sense, but for the significant dividends paid to shareholders over the same period – monies that might have been better used in the pension scheme. But – and here it all starts to get a bit murky – in reality, the Company apparently borrowed money in order to pay those dividends. Perhaps unsurprisingly the Company’s auditors – KPMG is also now in for some difficult questions.
When all of this is looked at over a period of 10 years or so, it all throws the spotlight back on the government as to how it procures construction and other services and the need to do so in a holistic way such that the contractors can make sufficient profits to satisfy the needs of all stakeholders, whether they be pensioners, employees shareholders, sub-contractors etc., and is not just about how the parcel of risks can be passed from the government to the private sector to satisfy political concerns.
There is now some debate as to whether The Pension Regulator could have used its powers to make a Financial Support Direction but, perhaps in fairness to it, two of the statutory objectives it has to follow might appear to be mutually exclusive. One is to protect the Pension Protection Fund from claims on it. The second is the Sustainable Growth Objective meaning
The Pension Regulator needs to keep in mind the desire of corporate sponsors to grow and invest in the business and which Steve Webb, then minister for pensions, said on its adoption in 2013:
"This new objective for The Pensions Regulator will help ensure that trustees and employers have the flexibility to come up with plans which deal with pension scheme deficits and benefit both scheme members and firms."
Well Steve, how’s that working for you now?