With the news that construction giant Carillion has gone into liquidation with a pension deficit of nearly £1bn, Stuart Price, Partner and Actuary at Quantum Advisory, explains what will likely happen to the 28,500 employees who have a pension with the collapsed company
Carillion is a major supplier to the Government, which was contracted to build some of the country’s most important infrastructure including Merseyside’s £335m Royal Liverpool University Hospital and the Aberdeen western peripheral route.
Stuart said: “This unfortunate story, which is seemingly becoming more frequent, is akin to what happened with BHS but on a much bigger scale.
“BHS’s liabilities when it went into administration were in the region of £500m. Comparably, Carillion operated 13 final salary pension schemes in the UK which accumulated liabilities of around £3.5bn, with assets of around £2.5bn. All members from the 13 defined benefit schemes will now get Pension Protection Fund (PPF) compensation and therefore it will be down to the PPF to plug the £1bn shortfall across the schemes.”
Steve Webb, director of policy and external communications at Royal London believes the PPF has the financial strength to absorb Carillion’s pension schemes within its normal rules.
What does this mean for members? Stuart explains “For those above normal retirement age, they will continue to receive their pension in full, but for those yet to retire or those who have retired in good health but are below normal retirement age will receive lower pension benefits than anticipated, with a minimum 10% drop immediately. Most members will also have lower increases in the future.”
“There is some good news in this terrible tale, in that the PPF currently has a surplus of around £6bn so it can easily take on Carillion’s pension liabilities at the current time. However, the subsequent impact could be an increase in PPF levies for other defined benefit schemes in the medium to longer term.
“I am surprised more wasn’t done by the government to stop the collapse of Carillion, particularly given their significant involvement with Tata Steel, although that may have been a political move to ensure that steel production remained in the UK.”