Did Carillion's banks demand pension scheme sacrifices as price of more loans? - Ros Altmann

    Ros is a leading authority on later life issues, including pensions,
    social care and retirement policy. Numerous major awards have recognised
    her work to demystify finance and make pensions work better for people.
    She was the UK Pensions Minister from 2015 – 16 and is a member
    of the House of Lords where she sits as Baroness Altmann of Tottenham.

  • Ros Altmann

    Ros Altmann

    Did Carillion’s banks demand pension scheme sacrifices as price of more loans?

    Did Carillion’s banks demand pension scheme sacrifices as price of more loans?

    • Carillion suggests some firms treat pension debt as ‘optional’.
    • Did lenders demand pension fund should be sacrificed as condition of bank loan?
    • Trustees and Pensions Regulator must be consulted before scheme security is compromised.
    • Totally unacceptable to insist pension security plays second fiddle – these liabilities have people’s lives attached.

    Serious questions about banks demands to reduce pension funding as condition of new loans: Evidence is emerging today which suggests that Carillion’s banks insisted further lending to the company was conditional on reducing pension scheme funding. If this is indeed the case, there are serious questions for the management, the Pensions Regulator and the trustees to answer.

    Pension scheme funding should not play second fiddle to the interests of banks. It is true that the pension is an unsecured creditor, but it should not rank lower than other unsecured debts just because it is longer-term. Indeed, our pension protection system would usually expect any firm which is considering reducing the funding of a pension scheme in deficit, to consult with the trustees and the Pensions Regulator to be involved as well when it is such a large scheme.

    Trustees should be involved if employer covenant is weakened: One has to ask whether the trustees were included in any discussions of such lending conditions? It is also important to know what assessments the trustees made of the security of the employer covenant, once profit warnings had been issued.

    Dividend policy must also be considered by trustees and Pensions Regulator: Furthermore, investigation of the company’s dividend policy and the involvement of the pension scheme trustees or pensions regulator is also needed.

    Trustees must be more robust in challenging employers – good precedent from GKN: This case has ramifications across the Defined Benefit pension landscape. Some trustees are becoming more robust in challenging corporate decisions. For example, the GKN trustees are laudably cautioning the company that it cannot just carry out corporate deals which may reduce the security of the employer covenant backing the scheme, without agreeing suitable funding for the pension scheme.

    Pension liabilities are sometimes considered optional – this view must not prevail: Yes, of course, if a company is in trouble then questions about pension funding must be considered along with other sources of needed finance. But the decisions about scheme funding need to be taken in conjunction with the trustees and, if necessary, the Pensions Regulator, so that members have as much protection as possible.

    Difficult decisions will be required if there is economic weakness: Defined Benefit pension schemes are overly represented in certain sectors of the UK economy – particularly traditional manufacturing or industrial companies. These tend to be large businesses, but also are clearly vulnerable to economic uncertainties associated with new technology. Brexit is also a significant risk. It is therefore urgent that pension trustees, employers and regulators act to improve protection for pension scheme members, especially where the scheme is significantly in deficit, as so many are.

    PPF is currently well-funded but may need to be better protected: Currently, the PPF is well funded and can cope with a few large schemes entering. However, it is very important for trustees and the Regulator to guard against too many large firms being ‘restructured’ and weakening the covenant for the pension fund.

    Barclays pension scheme covenant seems to be weakened: I am concerned, for example, that Barclays is leaving its pension scheme attached to the riskier part of its split business. I hope that trustees and the Regulator are looking into this carefully and that the funding of its massive liabilities will not be compromised. It may be fine, but members and other employers who themselves are supporting the Pensions Protection Fund insurance programme for all final salary-type schemes, need some reassurance that the scheme’s backing has been adequately considered.

    Pension risks are rising over the coming years: The next few years will be a hugely important time for pensions. Economic risks are clearly rising and the dangers for pension schemes attached to traditional UK industries are rising too. Member security must be taken properly into account before its too late. There are no easy answers, but adequate funding, scheme consolidation and contingency planning for difficult scenarios must be urgently undertaken. In that regard, it is very disappointing that the Government has delayed its pension scheme White or Green Paper and I urge quick action to ensure the country is prepared for potential pension disruption if economic risks materialise.


    Leave a Reply