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Pension Funds

U.K. government committee enters Carillion pension fray

U.K. members of Parliament have taken aim at The Pensions Regulator and Carillion PLC over the construction company's collapse and impact on its pension funds.

In a statement Monday, Frank Field, chair of the Work and Pensions Committee, said an investigation by the regulator "is much too late for the pensioners, who will inevitably now receive reduced benefits through" the Pension Protection Fund, the London-based lifeboat for defined benefit funds of insolvent companies.

Mr. Field wrote that the regulator "has been aware of problems in Carillion since at least 2008 but there is little evidence of any hard action."

Also Monday, the committee published a letter by Robin Ellison, chairman of Carillion (DB) Pension Trustee Ltd. — the trustee of six of the firm's DB funds — answering questions by the committee. Mr. Ellison will give evidence in person on Tuesday.

The U.K. construction group sponsors 14 defined benefit funds associated with various companies. Of the 14 DB funds, 13 are in the U.K. and one is in Canada, said Carillion's latest annual report for the year ended Dec. 31, 2016. In a financial update for the six months ended June 30, the firm said total DB assets were 2.6 billion ($3.4 billion).

On a buyout basis Mr. Ellison said the deficit of Carillion's five main pension funds is nearer 2 billion, with a technical provisions deficit of about 990 million according to a 2016 valuation.

Responding to Mr. Ellison's answers, Mr. Field said: "It's clear that Carillion has been trying to wriggle out of its obligations to its pensioners for the last 10 years. The purported cash flow problems did of course not prevent them shelling out dividends and handsome pay packets for those at the top."

In a prepared response, the TPR said: "We have been in contact with Carillion and the pension scheme trustees for a number of years about the funding of the pension schemes as part of our role to protect member benefits. Before the first profit warning in July 2017, we were already working proactively with the trustee of the six DB schemes which shared a single trustee in relation to their latest valuation. Our involvement continues during what is a very concerning time for present and former Carillion staff."

The statement said the current regulatory framework attempts to balance the needs of a pension fund and its participants, with the needs of an employer to invest in its ongoing business, which should be reflected in the length and structure of its recovery plan. "TPR does not approve recovery plans — it is for the trustee and employer to agree (to) them.

"The content of Carillion's recovery plans, and its payment of dividends, did not highlight sufficient concern to justify the use of our powers based on the group's trading strength as presented at the time in their audited accounts. However, it is clear from the company's announcements since July that their underlying profitability was significantly weaker than market understanding or the position set out in prior year accounts."

"It is too early to comment on whether with different information we could or would have taken action in the past or whether we will take action in the future, based on any new information that comes to light," the statement continued.