Debt laden construction firm Carillion has fallen into liquidation after it failed to reach an agreement with creditors during crisis talks over the weekend.
In addition to debts approaching GBP1 billion, the company has an enormous pension deficit. What does that mean for members of its staff pension schemes?
The construction and services giant operates 13 “final salary” pension schemes in the UK, with around 28,500 members, more than 12,000 of whom are already claiming a pension.
Carillion has a reported pension deficit of GBP587 million, but independent pensions consultant John Ralfe warned that the real hit to the Pension Protection Fund (PPF), the industry lifeboat for collapsed companies, could be around GBP800 million.
Under PPF rules, not all Carillion employees will receive their full pension. Those yet to reach retirement will typically see cuts of between 10 per cent and 20 per cent. There will be an initial reduction of 10 per cent when they reach retirement, plus they may lose some of their inflation proofing.
The recent collapse of Carillion Plc may increase pressure on some of the nation’s biggest companies to plug their own funding gaps.
The issue of pension shortfalls is a political hot potato in the UK that flared up again last year when Toys ‘R’ Us Inc.’s British unit avoided bankruptcy by agreeing to pump money into its retirement fund for workers. BT Group Plc’s shares tumbled last year after its pension deficit widened.
FTSE 350 companies have about GBP85 billion in total unfunded pension commitments. That figure reached a record-high of GBP165 billion after the Brexit vote, but has since fallen amid an improvement in the shares and bonds that make up the bulk of retirement pots’ investments.
While the PPF can fund the failure of a few large schemes, a pickup in bankruptcies could overwhelm it, particularly since the manufacturing companies most at risk from a so-called hard Brexit have a disproportionate number of defined-benefit plans, according to former pensions minister Ros Altmann.
“I don’t believe the government has considered the dangers of this to the wider corporate landscape,” Altmann said by email. “But perhaps the failure of Carillion will focus minds more carefully on the massive risks the UK and its pensioners might face.”
Could your pension be at risk? Do you have a pension shortfall? Have you reviewed your retirement provisions in light of recent changes to legislation?
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