The co-chair of the Parliamentary inquiry into Carillion’s collapse has slammed its former directors as “contemptuous” of the company’s pensions obligations after it emerged that they refused to approve increased deficit recovery contributions.
Pension scheme trustees wrote to the Pensions Regulator twice, in 2010 and 2013, to ask for a formal intervention to get the construction giant to increase payments, according to letters published by the joint parliamentary inquiry.
Commons work and pensions select committee chair Frank Field said: “Over two successive 15 month negotiations they refused to give an inch to the pensions schemes.
“Their private pleading that the company could not afford more was in stark contrast to the rosy picture – and bumper dividends – presented to the outside world.”
In 2010 Carillion refused to increase pension payments from £25M a year to the £35M that the trustees said was required.
A letter from the trustees to the regulator said: “There is a difference of opinion over what the Carillion group can afford to pay.
“In view of the recent bullish results announcement by the company, the strong cashflow and the 12% increase in shareholder dividends there appears to be a reluctance to recognise the position of the six group schemes.”
The trustees contacted the Pensions Regulator for a second time in 2013 to ask for “formal intervention” after negotiations reached an “impasse”.
Trustees proposed contributions of £65M a year over 14 years to meet an estimated deficit of £770M, but the company made a “take it or leave it” offer of £33.4M a year over 15 years.
The Pensions Regulator announced it was investigating Carillion in the days after it was forced into liquidation. Field added: “The Pensions Regulator started its arduous process of chasing money down from Carillion a few days after it was formally announced there was no money left. I can only assume, and hope – they are going after some of those very generous bonuses.”
A Pensions Regulator spokesman said the regulator did threaten to use its powers to impose a recovery plan in 2013, and that this “resulted in a significant increase in the amount of money the company was prepared to pay into the scheme.”
He added: “We believed this was reasonable based upon our understanding of the company’s trading strength as set out in its audited accounts.
“The investigation we have now launched is looking at whether there are grounds to use our anti-avoidance powers”.
Anti-avoidance powers can be used to stop employers avoiding pension obligations or misusing funds, and these have been used to help recover money for schemes through settlements and regulatory proceedings.
A major Carillion investor considered suing the failed construction company after a shock profit warning in July, evidence submitted to the inquiry revealed yesterday as the number of redundancies climbed to more than 1,000.
Pensions Regulator directors will give evidence to the work and pensions committee and the business, energy and industrial strategy committee on Thursday, alongside representatives from Carillion’s auditors KPMG and Deloitte.