Staff of failed construction giant Carillion are likely to see their pensions cuts after the company went into liquidation leaving a pensions black hole of £580m.
Carillion employs 43,000 people across the globe, including 20,000 in the UK.
The UK government has promised staff employed by Carillion will continue to be paid, but their pensions will be affected.
The assets of the Carillion pension fund are now likely to be taken over by the Pension Protection Fund (PPF), which will be responsible for paying out pensions.
Tom McPhail of brokers Hargreaves Lansdown said Carillion pension scheme members would be “understandably worried” at today’s news that the company was going into administration.
10% pension cut
“The Carillion scheme has a deficit of £580m, meaning there isn’t currently enough money in the scheme to meet the promised pension pay outs,” he said.
“Whilst the PPF provides valuable security, members who have not yet reached retirement should be prepared for a cut to their pension pay-outs.
“This will involve an immediate cut of 10%, plus the possible loss of some inflation-proofing; higher earners may be affected by the PPF cap on payouts, which currently stands at £34,655.”
He said pension scheme members who had already reached normal retirement age should continue to enjoy 100% of their current pension payments.
If the PPF does take on the Carillion scheme, the assessment process could take months or even years, but McPhail said the Carillion scheme administrators, the liquidators and the PPF would work together to ensure continuity of payouts for members.
'Trigger alarm bells'
Carillion's liquidation should “trigger alarm bells” for pension savers across the UK, the CEO of one of the world’s largest independent financial advisory organisations has warned.
Nigel Green, chief executive and founder of deVere Group, said, “The UK woke up to the news this morning of Carillion being forced into compulsory liquidation. This should trigger alarm bells for pension savers across the UK as it puts a huge question mark over the fate of yet another major pension fund.
"The government’s pensions lifeboat, the Pension Protection Fund (PPF), is now to take over payment of pensions for the company’s retirement scheme members. Whilst the PPF is an important and valuable support, UK final-salary pension schemes have an enormous deficit black hole, which raises the inevitable question, ‘how many more big hits can the PPF take?’”
He added: “This deeply depressing, and now all-too-frequent, turn of events should be a wake-up call to pension savers.
"Retirement income is precious. You should now ensure that you are properly diversified to mitigate any potential risks to that income and take advantage of the opportunities that exist.”
Big banks take hit
Carillion issued a statement today after announcing the firm had put itself into liquidation, owing £900m to banks, including the UK’s big high street names – Barclays, RBS, HSBC, Lloyds and Santander.
“In recent days we have been unable to secure the funding to support our business plan and it is therefore with the deepest regret that we have arrived at this decision,” Carillion chairman Philip Green said in a statement.
“This is a very sad day for Carillion, for our colleagues, suppliers and customers that we have been proud to serve over many years.”