The secretary of state for work and pensions has told MPs clawback and avoidance measures could be imposed for the people responsible for driving Carillion over the cliff.
Whether the measures proposed in the white paper would prevent another Carillion, and whether it should retrospectively affect those responsible, were key points discussed at a hearing on 21 March as part of the Work and Pensions Committee (WPC) and Business, Energy and Industrial Strategy Committee's (BEIS Committee) joint parliamentary inquiry.
Esther McVey was questioned on the proposals in the recently published defined benefit (DB) white paper, and how they might work in practice.
She said: "No one could sit here and categorically state what could and could not have happened with Carillion, but what we do know in bringing this white paper forward, is that it will prevent as best as possible the protection of pensions schemes and pensioners, and should anybody do anything to weaken and recklessly put their pension scheme into difficulties, then those people will get either penalties, or now, criminal sanctions for what they have done.
"This is about strengthening the regulator, and about giving them powers to investigate more… and being able to enforce a funding standard."
When WPC chairman Frank Field asked her if more powers are given to TPR, could they apply to Carillion retrospectively, McVey responded: "There are some fines that could apply and also codes and guidance and strengthening powers, but the things that would need primary legislation, would obviously come in after."
When asked to rate the regulator's reaction to the escalating issues at Carillion, McVey said it had done a "fair job", but going forward she would like them to be a 10 - a response that was very much expected by the committee. But McVey did say: "Everyone's agreed they need to be more proactive."
There could be clawback and avoidance measures put in place for the people responsible for driving Carillion over the cliff, once what exactly went on at the company is understood, said McVey. She also pointed out that the vast majority of businesses were doing the right thing by its staff. Nevertheless, WPC said it found the evidence put forward, showing just how much the regulator did not do throughout the sage, incredibly frustrating.
Field pressed the issue further, saying the regulator was "simply acting too late" and "no matter what powers the regulator has, if they don't use them, nothing happens".
The committee also published a series of correspondence covering The Pension Regulator's (TPR) actions and uses of its powers in relation to Carillion on the day of the hearing.
As Carillion collapsed on 15 January, its defined benefit (DB) schemes had an estimated £2.6bn buyout deficit, and while TPR had the necessary powers to act through section 231, it did not. Section 231 allows the watchdog to impose a contribution schedule on an employer for its pension scheme if it is not happy with the schedule agreed between the employer and trustee.
The regulator's correspondence made it clear that it has never fully used its section 231 powers, although it has one undisclosed case still pending. However, the evidence also included reference to TPR's request for that power to be strengthened, which has subsequently been proposed in the DB white paper.
Field said the committee was "anxious" for the white paper to appear as a bill so it could come into full force as soon as possible and said: "I struggle to see how a power that has only been deployed once in 13 years can possibly act as a credible deterrent to wilful scheme underfunding… the defensive and under-prepared performance you and your senior colleagues gave before the joint committee certainly gave me no assurance that the TPR leadership is equipped to bring about the necessary cultural change."
He added: "Those that will be affected by the white paper, surely now know the game has changed."
Most of TPR's negotiations with Carillion were conducted via PwC, which was also responsible for advising Carillion's directors on managing pensions liabilities from 2012 to 2017, before they switched over and became advisers to the trustees. At present, PwC is special manager to Carillion, helping the firm move through its liquidation process, and is therefore tasked with trying to salvage some funds for the pension protection fund (PPF), "which is likely to pick up all but two of Carillion's 13 pension schemes and has estimated the funding shortfall for the schemes at around £900mn" according to a statement by WPC.
However, commenting on PwC's role in a statement sent out by WPC, Field said: "PwC had every incentive to milk the Carillion cow dry… they claim to be experts in every aspects of company management. They're certainly expert in ensuring they get their cut at every stage."
He went on to ask PwC partner Gavin Stoner if more information required by pension trustees as a result of the white paper would have helped in Carillion's case? Stoner replied: "The proposals are welcome because earlier information and better information is going to help trustees".
When asked if PwC regretted to defer Carillion's pension contributions, Stoner respond that it did not, because the circumstances at the time were particularly difficult, "it had a balance sheet debt of 1.4bn, off balance sheet debt of the pension scheme which was significant, it also has an early payment facility 400mn pounds". Also, that by doing so, "the scheme was able to preserve its position in a number of respects, e.g. it's ranking in terms of it claim in insolvency, which has saved the pension scheme millions of pounds", he said.
After the initial eight-week period following Carillion's collapse, PwC has earned £20.4mn in fees on the cost of the liquidation process. Carillion had just £29m in the bank when it went under.
When grilled about how much the cost would be in total, partner and special manager David Kelly was unable to provide an estimate. However, he said he personally makes £865 an hour as partner, while the average hourly rate of around the 112 employees currently working on Carillion's case was £360 an hour. Kelly commented: "they are paid out of the assets and recoveries of each of the current 27 individual liquidation estates."
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