Government must learn lessons from Carillion’s alarming pension liabilities

News


19 Jan, 2018

Government must learn lessons from Carillion’s alarming pension liabilities

The government and its agencies must learn lessons from the Carillion collapse – and quickly - to address the inherent weaknesses of many UK final salary pension schemes, affirms Nigel Green, CEO and founder of one of the world’s largest independent financial advisory organisations.

Mr Green is speaking out after Sky News reported on Friday afternoon that “Carillion's pension deficit…was as high as £2.6bn, a far higher sum than the £587m accounting deficit referred to by its former chief executive in a High Court witness statement.”

He comments: “Carillion is not the first and it certainly will not be the last major company to collapse, leaving the Pension Protection Fund (PPF), the government’s pension lifeboat, to rescue pension members and ensuring that they receive the majority of their hard-earned retirement income.

“For far too long, too many major companies have been focusing on short-term goals and profits, rather than taking a longer-term, sustainable and more holistic approach. This is, in part, causing the black hole in the so-called ‘gold-plated’ defined benefit pension funds.”

He continues: “The combined deficit of the FTSE 350 firms has now reached 70 per cent of their profits. But it is not all down to firms. External factors have played an important role in the expansion of the funding gap.

“These include that ultra-low interest rates, under the quantitative easing agenda, have pushed up the current value of future liabilities, but even the rally equity and bond markets couldn’t offset them. In addition, baby boomers, who are those most likely to have these so-called ‘gold-plated’ pensions, are into their ‘golden years’, ushering ever more schemes into the costly pay-out phase.”

Mr Green goes on to say: “The Pension Protection Fund (PPF) is succeeding in doing incredible work by providing vital protection and much-needed reassurance for consumers across the UK.

“However, the reality is that the final salary pension promise was, in times gone by, easy to make, but it is harder to keep in today’s world. 

“With this in mind, it is now time for the government and its agencies to work more closely with companies to manage their pension liabilities in an increasingly challenging environment.”

The deVere CEO concludes: “Lessons from the Carillion collapse must be learned – and quickly - to address the inherent weaknesses of many UK final salary pension schemes.”