The fate of Carillion as a company is in the balance. Up to 20,000 jobs are at risk.
Bond and equity holders are likely to lose substantial sums. Carillion driven projects are likely to suffer and 28,000 members of Carillion pension schemes will suffer loss.
Carillion’s 13 pension schemes which include such household names as Tarmac, Mowlem and Alfred McAlpine, will probably into the Government lifeboat , the Pension Protection Fund.
The Carillion pension schemes, with around 28,000, members will be transferred to the Pension Protection Fund, the industry lifeboat, following the Company’s collapse this morning.
— Josephine Cumbo (@JosephineCumbo) January 15, 2018
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Pensioners may get a slightly lower rate of pension increases, those awaiting their pensions will see their pensions cut by 10% (more if they have big pensions). None of this is good, this is not a good time to be connected with Carillion in any way.
There is a group of former public sector workers who may lose out slightly more, as Prospect are pointing out (via the FT).
It is clear however , that members of the pension schemes are protected.
BREAKING: PPF statement on Carillion:
“We can confirm that we have been notified of the liquidation. We know this news will raise serious concerns for all people involved. We want to reassure members of Carillion’s DB pension scemes that their benefits are protected by the PPF.”— Josephine Cumbo (@JosephineCumbo) January 15, 2018
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But it would appear that the situation is complicated by not all of the individual companies being in administration – It would appear that 8 out of the 14 companies in the Carillion Group are not in administration , which explains this statement from tPR
BREAKING: The Pensions Regulator says its “too early” to comment on possible outcomes for the various pension schemes connected to Carillion, following the company’s collapse., but it added the PPF is there to support members.
— Josephine Cumbo (@JosephineCumbo) January 15, 2018
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The list of companies in administration is
Carillion Plc
Carillion Construction Ltd
Carillion Services Ltd
Planned Maintenance Engineering Ltd
Carillion Integrated Services Ltd
Carillion Services 2006 Ltd
For a pension scheme to go into the PPF , a section 120 notice has to have been issued following the insolvency . It is possible that some of the businesses may survive and with them their pensions.
The PPF is strong and will be able to absorb the deficit of £580m, even if this deficit is measured another way, it is not big enough to increase levies on other pension schemes (which have been falling fast in recent years as the PPF moves towards being “levy-free” or “self-sufficient”).
We must get used to seeing companies fail. Not all companies that fail pass their pensions into the PPF , BHS remains outside as do others. The British Steel Pension Scheme avoided the PPF. The PPF has capacity and is – if anything -underused.
As this blog has said many times, the PPF is a national treasure. It is invested – not in funds – but by its own investment managers, it is self-administered, it treats its members well and it is a model of good governance. It is one of government’s success stories.
While it is not a good time to be retiring from Carillon, its pension schemes are not badly run. The deficit is not so “huge” as to make the scheme the cause of the company’s financial woes. Indeed the scheme, would, in the normal course of events, have followed a recovery plan to solvency. It may not now be allowed to, but Carillion members should not be blaming its trustees for that.
Carillion’s woes as a company are to do with its debt and to do with business decisions that went wrong. These things happened , not because of some financial credit crunch or global recession – we are beyond these things – but because of a combination of poor decision making and bad luck.
The attrition rate of large companies operating in the Western World is low, not many go bust – Carillion may still not go bust. But some companies will go bust. For every Amazon there is a BHS.
I worked for a time with Alfred McAlpine and got to know a good many of the people who were in its pension scheme. They were good people who built roads, I remember being taught about roads – I remember the pride with which they talked about environmental considerations. We do not stop needing the skills of these people. They will find new work. The shareholders and bond holders of Carillion will absorb their losses as these holdings are part of diversified portfolios. Few people should have their financial futures dependent on the price of Carillion equities and debt.
It seems to me, the major concern expressed today , is that Carillion has been awarded Government contracts, while in its current financial pickle. This may be a political worry for those who awarded them and may account for the weekend meetings in the Cabinet Office. But this is hardly the cause for panic.
The reality is that Carillion’s current problems are local and manageable. The deferred pensioners and pensioners will get less , but not markedly less (full details here) . The PPF will do what it is designed for. Investment portfolios will absorb losses on Carillion debt and equity and Carillion workers will find new work.
This is business as usual and not the end of the world, even if that is what it feels like, if you work for Carillion this morning. My thoughts are with those who work for Carillion and I hope that any who read this , will take heart that they are not the first – nor will they be the last – who face this situation.
The Pension Advisory Service (TPAS) has set up a dedicated helpline for Carillion pension scheme members 020 7630 2715
Carillion’s Chair – Phillip Green (no relation)