The current way The Pensions Regulator (TPR) operates could give “false comfort” to the system, a select committee on the Carillion crisis heard today, 30 January 2018.
Both Carillion Defined Benefit Pension Trustee Limited chair, Robin Ellison, and Independent Trustee Services managing director, Chris Martin, told the committees that the regulator’s current statutory objectives are conflicting, and that the framework in which it operates is too restrictive.
Speaking to the Business, Energy and Industrial Strategy and Work and Pensions committee MPs, the pair sympathised with TPR’s current position, saying that it had to balance interests of the company, the members and the Pension Protection Fund (PPF).
Yesterday, TPR announced they were launching an investigation to determine whether it can use its anti-avoidance powers against the firm, a move Work and Pensions Committee chair Frank Field described as “much too late”.
Ellison said: “We might explore whether the existence of the regulator and the way the regulator operates gives some kind of false comfort to the system and that people rely on it, when they can’t.
“I wonder if any regulator, even if it was beefed up to the nth degree, could do the job that it is being asked to do, and because of its role, people are putting trust in it that it can’t deliver on.”
Speaking on TPR’s current situation, Martin said: “The regulator has four statutory objectives at the moment, I think at least three of them conflict with each other, which, in fairness to the regulator can’t make its decision making any easier.
“The regulator should have a single objective, which is to deliver better outcomes to its members in pension schemes. That’s what I think it’s there for and that’s what the members think it’s there for.”
Furthermore, Martin suggested something should be done to change the legal framework which the regulator operates which can further benefit the members of the scheme.
“The rest of the framework the regulator works in is too restrictive. We talked about binary outcomes, where you get to a point where it’s insolvency or a structured entry into the PPF.”
“So from a member's perspective its PPF or PPF, there must be something within the legal framework that can recognise that full benefits aren’t affordable but something higher than PPF must be achieved. At the moment we drive companies and schemes to the wall”, added Martin.
Martin, an independent trustee, was first approached by Carillion trustees in October 2017 and was asked to sign a non-disclosure agreement by the firm on 21 December 2017, before fully engaging with the pension scheme on 1 January 2018.
A spokesperson for TPR, said: “The current regulatory framework attempts to balance the needs of a scheme and its members with the needs of an employer to invest in their ongoing business – this should be reflected in the length and structure of the recovery plan. TPR does not approve recovery plans - it is for the trustee and employer to agree them."
Furthermore, TPR said that calls for new powers is a matter for government and it awaits the White Paper in due course.
Unite, the UK’s largest union has called for “urgent reform” of pension laws after the scale of the collapse emerged.
Unite assistant general secretary, Gail Cartmail said: “The developing picture of the level of incompetence and mismanagement at Carillion is simply staggering.
“It is frightening that the legal framework in the UK is so weak that no one was able to intervene to prevent the company’s collapse, despite it now becoming apparent its financial problems began a decade ago. This was not a small company it employed 20,000 workers, with thousands more in its supply chain.”
In addition, Ellison said that he does not think there is any more trustees could have done, even with the benefit of hindsight, to raise contributions into the pension scheme from its sponsor.
He said: “It’s a balance as a trustee, we thought we were entitled to more than the company thought we were entitled too … The power of trustees are limited and we can’t force a demand for money.
“We engaged in robust discussions [with Carillion] with inadequate results.”
The firm’s 28,500 members will now fall into PPF, which offers a reduced level of benefits to employees of companies who become bankrupt, and could face a bill of up to £920m for Carillion.
Carillion paid over £70m in dividends in 2011 and 2013.