Carillion goes into liquidation – what it means for your pension

Published by Edmund Greaves on 16 January 2018.
Last updated on 16 January 2018

Carillion goes into liquidation – what it means for your pension

After the collapse of construction firm Carillion, the company’s various defined benefit (DB) pension funds have entered assessment by the Pension Protection Fund (PPF).

The PPF says in general it aims to complete the assessment period within two years.

During the process, the PPF will check the accuracy of all the data passed to it to ensure members receive the right compensation.

The PPF was set up by the government as a back-stop to protect workers’ defined benefit pensions when companies become insolvent. It’s funded by a levy imposed on all employers offering final salary pensions, which amounts to over £500 billion annually. Of Carillion, a spokesperson from the PPF says: “We can confirm that the pension schemes associated with the companies that have gone into liquidation have now entered the PPF assessment period. Member benefits remain protected”. 

Workers who hold a defined benefit Carillion pension and are retired, can expect to receive 100% of their pension entitlement. Those who hold a final salary pension but are not retired can expect 90% of their accrued pension subject to an overall cap. According to pensions expert Tom McPhail from Hargreaves Lansdown, the current cap on pension payments is £34,655.05, though he says for long serving employees it can be higher.

During the assessment period, if you have reached pension age and are receiving an income, your pension payments will continue as normal.

Workers who hold DB pension schemes with Carillion are being advised by The Pensions Advisory Service (TPAS) to contact it with any questions they might have on its dedicated helpline (020 7630 2715) or via its website. The government has also published a page with information for employees.

According to the latest annual report from Carillion (for 2016), across 14 DB schemes there were £2.57 billion in assets and £3.37 billion of liabilities. This means there was an £800 million shortfall before tax adjustments. The shortfall is double that of 2015, where the accounts show a £400 million deficit, underlining Carillion’s struggle with debts that led it to insolvency.

Joe Dabrowski, head of governance and investment at the Pensions and Lifetime Savings Association (PLSA) warns employees to think carefully before transferring out of DB schemes: “One in six (17%) pension holders in the UK have been contacted by a company – other than their provider – to discuss making changes or transferring their pension. And following the collapse of Carillion, we have already seen warning signs that scammers may be seeking to exploit DB scheme members’ fears about their future. 

“We call upon Regulators to act urgently to ensure that members are protected, and to take the strongest possible action against unscrupulous companies looking to take advantage of savers. Transfers should only be undertaken if they are in the best interest of the scheme member and with the right level of guidance."  

‘The PPF is financially strong and will be able to pay out pensions’

Former pensions minister and director of policy at Royal London Steve Webb comments: “Carillion workers will understandably be devastated by the announcement of the liquidation of their firm.   But they, and retired Carillion workers, can be assured that the pensions ‘lifeboat’, the Pensions Protection Fund (PPF), will help to protect their pensions.  

“Although there is a big shortfall across the Carillion pension schemes, the PPF is financially strong and will be able to pay out pensions in line with its normal rules. The deficit in the Carillion schemes will not sink the pensions lifeboat.”

 Rebecca O’Keefe, head of investment at interactive investor (Moneywise’s parent company) adds that the government did not “want to be seen” to bail Carillion out: “The government’s decision to walk away from Carillion appears to be based on optics rather than logic and looks like the wrong decision was made for the wrong reasons. There is no doubt that Carillion posed a huge political challenge for the government, which did not want to be seen to bail out another group of private shareholders and banks after suffering such a backlash from its decisions during the financial crisis.”

What about defined contribution pensions?

Carillion’s latest annual report (2016) details that it paid out £25 million into defined contribution (DC) pensions.

DC pensions are not covered by the PPF because the money in them is held by a third-party pension provider, which means even when an employer goes bust, the pension fund is safe – of course, the employer will however be unable to pay in any further cash.   

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The Carillion insolvency

The Carillion insolvency raises a lot of questions relating to both the worst aspects of our capitalist system and the government's ability to govern.

But specifically on the pension situation, it once again highlights the unacceptability of allowing pension funds to be anything other than fully financed in terms of its pension liabilities. I think its unfair to ask other companies - or anyone else - to finance shortfalls (via the PPF) in companies that go into liquidation. If all pension funds were fully financed at all times, then there wouldn't be any shortfalls.

I am not one of the people

I am not one of the people employed by Carillion,however, I do a very good reason for change in the law. All companies should be forced to fully fund their pension schemes, and also the money kept by an insurance company not invested in their own.