The Collapse of Carillion



Posted on: 23rd January 2018

January has started the year off with a major collapse with construction giant Carillion, affecting future pensions for thousands of employees in Britain who are under its wing.

The collapse, with more than half a billion pounds in unfunded commitments, may end up increasing pressure on companies to plug their own funding gaps. The construction giant pays nearly twenty thousand people in the UK and has a pensions shortfall of five hundred and eighty seven million pounds.

The government-backed pension protection fund will probably step in to bridge this shortfall, but future pensioners would now be looking to face a ten percent drop in payouts, and a cap of thirty five thousand pounds under the PPF rules.

According to a spokeswoman, Carillion’s eligible pension schemes are likely to now enter an assessment period, where the PPF will decide on compensation. PPF has six billion pounds in reserves and manages twenty eight billion pounds in assets available to help generate a return. However, despite the PPF’s ability to fund the failure of a few large schemes, too many could become overwhelming.

Not the First Time

The collapse of Carillion is not unprecedented. Pension deficits have been something of a “Hot Topic” in the last twelve months. Last year, Toys “R” Us dodged bankruptcy by agreeing to pump money into the retirement fund for their workers after an assessment by the PPF. This resulted in an estimation of up to thirty five million pounds in shortfalls.

As well as this, BT Group Plc faced a fourteen billion pound deficit in 2017, leading to the closing of defined benefit pensions to eleven thousand managers, as well as lowering contributions to over twenty one thousand front-line staff members.

Playing Hardball

PM Theresa May has now been urged to levy on billion pounds in fines after the latest collapse. According to the Prime Minister, “Spring will set out tough new rules for executives who line their pockets by putting their workers pensions at risk” and states that “This time next year, all companies will have to reveal pay between bosses and workers.”

On top of this, companies will be expected to explain how their employees interests are taken into account to avoid any opportunities for unscrupulous employers. Perhaps a firm foot on companies will bring a positive turn around to employees in the future.

However, the chief executive of rival company serco has claimed that fingers should really be pointing to the government, claiming it has created a market where only the “dumb and desperate” would bid for public sector contracts.

What the Future Holds

Though the future actions Theresa May is promising to take may appear harsh, labour MP Frank Field has stated that “The mere fact that they’re there and that we would have a pension regulator who really just puts the fear of God into people to behave properly.” Perhaps it is time to put scare tactics to good use, especially if it can bring a positive change to the effect of future pensions for employees in large companies.

How Haven can protect you and your business

As this week has created awareness over pension protection, the collapse has provided a good example that protection is needed. Business owners need to be seeking the right advice from a professional. A secure and risk-free company should be there to guide you and to make sure yourself and your employees benefit in the future.

For individuals and pension scheme members, it’s important to start planning ahead. Reviewing your finances and getting advice on external planning is a sure way to keep yourself covered, and your future secure.

At Haven, we are here to provide the guidance you need to set yourself and your employees up with a secure, long term plan for your financial future. If you would like to know more about how we can help you, call us on 0161 495 9340 for a free no obligation meeting on your financial planning needs.