Joint committee lambasts TPR over Carillion failure

The Work and Pensions Committee has lambasted The Pensions Regulator over its “hollow” approach to protecting Carillion’s pension schemes.

In a joint report on Carillion published today, 16 May 2018, the Work and Pensions and the Business, Energy and Industrial Strategy (BEIS) committees said that it is “far from convinced” that TPR’s current leadership can effect change, and that it was “deeply concerned” with evidence it received from the regulator.

The report did not go as far as suggesting that the regulator should be scrapped all together, but said that it would “further consider TPR in its ongoing inquiry into the defined benefit pensions white paper”.

In particular, the joint committee noted the regulator’s failure to use, even a single time, its powers under section 231 of the Pensions Act 2004 that would allow it to impose a schedule of pension contributions.

The report also disputed the regulator’s claim that its intervention led to an increase of £85m across the recovery period as “unclear”, and was a long way from the £342m the trustees were seeking.

“The agreed plan was also heavily backloaded, with initial contributions of £33m matching the company’s offer and steps up in contributions only occurring in later years, when it would regardless be superseded by a new valuation and recovery plan”, the report said.

TPR was also called into question for not offering “any serious challenge” to Carillion’s dividend policy, despite pointing out in April 2013 that it was “not comfortable with recovery plans increasing whilst dividends are being increased”.

When questioned by the joint committee over Carillion’s dividend policy, TPR chief executive, Lesley Titcomb, said that it “cannot and should not prevent companies paying dividends, if that is the right thing to do”.

Furthermore, the joint committee probed the timing of TPR’s investigation into Carillion, launched days after the company had already collapsed, reiterating its 2016 findings that “TPR intervention tended to be concentrated at stages when a scheme is in severe stress or has already collapsed”.

Despite this, the report accepted that the regulator had different leadership than at the height of its Carillion failings, that it also set new performance indicators for quicker intervention into DB schemes and that it is under more political pressure to focus on its “core responsibility of protecting pensions”.

Commenting on the joint committee’s findings, Titcomb, said: “We actively seek to learn lessons to better protect members of pension schemes. In the past the balance between members and employers was not always right. The report underlines the significant changes already made at TPR but there is more work to do.

“We are now a very different organisation; we are clearer about what we expect, quicker to intervene and tougher on those who do not act in the interest of members. We have reinforced our regulatory teams on the frontline and are embedding a new regulatory culture.”

Titcomb added that the regulator is working closely with the government to implement the changes recommended in the DWP’s white paper as well as its own changes on how it regulates.

The report added: “Carillion was run so irresponsibly that its pension schemes may well have ended up in the PPF regardless, but the regulator should not be spared blame for allowing years of underfunding by the company. Carillion collapsed with net pension liabilities of around £2.6bn and little prospect of anything being salvaged from the wreckage to offset them.”

Commenting on the report, Hargreaves Lansdown senior pensions analyst, Nathan Long, said: “Stopping short of a recommendation to disband the regulator, findings that a ‘tentative and apologetic’ approach is ingrained at the regulator, and with doubts about the current leadership, suggest that the intense scrutiny will continue at least a little while longer.

“The proposal for a closer working relationship with the Financial Conduct Authority looks timely and may help deflect some of the heavy fire.”

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