Plans to save the beleaguered Halcrow Pension Scheme have come under fire by the association representing some of its members. Kristian Brunt-Seymour reports.
At a glance:
- Association to resist any recovery plan bearing resemblance to previous ones
- Concerned the solution could be detrimental to member benefits
The Halcrow Pensioners Association (HPA) has warned it will resist any rescue plans for the defined benefit (DB) scheme that it deems unsatisfactory for members.
Halcrow's parent company CH2M has been developing a solution for the Halcrow Pension Scheme (HPS) and its 3,300 members after the High Court ruled a previous proposal was not legal. An alternative solution which includes plans for a liability management exercise will be announced in the coming weeks.
A contribution schedule has not been agreed since Halcrow was bought by US firm CH2M in 2011, and contributions are still being paid on the basis of the 2008 actuarial valuation.
The trustees and sponsor have been trying to find a solution for the sustainable funding of the scheme, which is reported to have a £600m deficit, to avoid the Pension Protection Fund (PPF).
Speaking to PP, HPA's chairman Stephen Brichieri-Colombi argued previous attempts to reduce the deficit since the 2011 acquisition have only worsened the funding position. He also warned any recovery plan that bears similarities to the previous ones would be resisted by the HPA.
The solution that was deemed not legal by the High Court last December was expected to provide members with better benefits than the PPF and include a £120m capped guarantee from CH2M. This would have involved winding down the scheme and transferring the assets and liabilities to a new scheme.
The association said despite that proposal being presented as a good deal for members, it believes the potential payment would be lower than the PPF and with far less security because the proposed guarantee was capped at a fraction of the deficit.
The association, which was formed shortly after the acquisition, says it has 500 corresponding members.
"Every Halcrow pensioner is now going to find they're going to be under pressure to accept a reduction in pensions down to the level that PPF would have paid," said Brichieri-Colombi.
"The trustees have given themselves the option to increase it at any level that they [deem] reasonable, and that can include a minimum amount, which means it could be a negative amount given that the consumer price index is currently in negative territory. This could impact the pensioners by giving them no choice but to accept whatever decision the trustees make, which [could be] much worse than the PPF."
"The security of HPS is very low and Halcrow Pension Association is recommending to the members not to accept this offer if it reappears in another form," he added.
A CH2M spokesperson said in a statement it was "disappointed" the HPA is not waiting until the proposal is known before making a recommendation to its members, and added:
"We strongly believe the offer that will be put to members shortly will result in all members of the scheme being better off. The HPA is not well qualified to recommend what is in the interests of individual members.
"The solution put before the High Court guaranteed that benefits would be at least equal to those provided by the PPF. It seems the HPA has not understood an essential component of the deal.
"We strongly believe the offer which will be put to members shortly will result in all members of the scheme being better off than the PPF."
The association believes more should have been done when the 2011 acquisition took place. Brichieri-Colombi said there was strong case for the £123m proceeds from the sale of Halcrow, then an employee-owned company, to be put into the pension fund.
A scheme of arrangement was sanctioned in a November 2011 High Court judgment, allowing the acquisition to take place without a legally binding guarantee of extra financial support for the scheme.
Brichieri-Colombi also believes lack of due diligence had been taken by CH2M on the purchase of Halcrow.
"The pension liability was a major issue right from the start because it stood at £149m when Halcrow was purchased by CH2M," he said.
He highlighted this in a letter on 19 October 2011 to CH2M's then chief executive officer Lee McIntire, before the acquisition was completed on 10 November.
"It was clearly obvious what was going to happen [in 2011] as the shareholders were going to take all the money from the sale and hand over the company with a great hole in its pension fund."
The latest financial reports publically available show the deficit on a buyout basis rose from £240m in 2002 to £330m in 2005, and £395m in 2008.
Recovery plans for those years all ended with HPS being in greater deficit than at the time they were initiated so "the scheme has a history of failure", he added.
The trustees have not yet responded to a comment request.
The CH2M spokesperson said the scheme is not alone in reporting greater deficits. Also, the direct comparison between years is "inappropriate" as material new pensions legislation came into force between the 2002 and 2005 valuations.
They added: "At acquisition a plan was in place to fund the HPS liability.
However, since then the strength of the business has been found to be different from what we expected, meaning what was agreed by the previous owners of Halcrow was unaffordable and unsustainable, contrary to expectations."
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