Trustees' News about the Halcrow Pension Scheme on 29 April 2016

[Stephen Brichieri-Colombi]

The HPA committee is in active discussion about the contents of this circular, which is of great significance. We welcome participation by all members on the forum to seek opinions and information and get feedback. Clearly, unless we make our voices heard, we are going to be presented by the Trustees and CH2M with a fait accompli decision on a reduction in our pensions, distributed in a predetermined way, despite the assurances given by the CEO of CH2M at the time of the take-over.
If ever there was a time to get involved, this is it.
Chairman, HPA

[PhilipAlexander]

I received the Trustees' notice by email yesterday, being overseas.

Whilst being fairly outspoken on the integrity and probity of the Group Board at the time of my departure in 2004 and the subsequent sale to CH2M, the Trustees of HPS are clearly doing their best on our behalf, if the notice is correct. The bare bones of the proposed "solution" to the intractable and unaffordable funding problem seems to be a scaling back of the escalation indices applied to our pensions.

These are the 3 bullet points from the Notice dated 29 April 2016:-
• Have the same Trustees as the Halcrow Pension Scheme;
• Benefit from a guarantee from CH2M;
• Provide identical benefits to the Halcrow Pension Scheme - with the exception that
pensions in payment and deferment would increase at a lower level than under the
Halcrow Pension Scheme (and so reduce the costs of the Halcrow Pension Scheme).

Some of us are lucky enough to have a built in 5% annual increase to that part of our pension up to (I think) about 1991 which of course compared with present day inflation and interest rates is remarkably generous. Obviously deemed perfectly affordable in the days before Gordon Brown raided pension funds and in effect caused the bottom to fall out of the market thus screwing us all forever. Then the GFC has destroyed interest rates for the remainder of my lifetime, so getting a 5% increase every year on a majority chunk of my pension is welcome but clearly unsustainable.  If the removal of this generous component of our ongoing pension and its replacement by CPI or RPI is the price we have to pay to continue to receive what is a pretty reasonable pension, then it really is a small price. It will be far preferable to the HPS going into the PPF and all its inherent uncertainties. Remember that the PPF is not underwritten by government and will itself come under strain as more and more pension funds seek its protection, the latest being BHS which seems to have a deficit greater than £500 million. That will put a strain on the PPF resources. I would hate to have to rely on living on the interest paid by savings and investments in the present financial climate, the security of a final salary pension scheme was one of the reasons I stayed with Halcrow for 29 years.
If CH2M really is prepared to give a cast iron guarantee to keep HPS going if the growth indices are scaled back; and in doing so is able to keep Halcrow going as a solvent, trading entity, then given the opportunity I will vote to support it. It's all very well moaning about the promises which CH2M made at the time of takeover; we live in the real world and to oppose what appears to be a sensible, pragmatic solution to the problem would be a real "dog in the manger" attitude to take.
The legal judgement outlined in the Notice seems to imply that all members would have to vote to accept any changes, which is a big ask of 3000 odd people. However, if it only takes 1 or 2 to scupper an agreement then I shall feel very aggrieved - and not for the first time!!
I would urge everyone to think very carefully if presented with a pragmatic proposal which removes the threat of Halcrow going bust and the HPS being taken over by the PPF.
I would therefore take issue with the words of HPA's Chairman whereby he says that we face a reduction in our pensions. Yes, we may face lower future increases to our pensions but there is no proposal to reduce pensions. I'm sorry to say that his words appear to be scaremongering, which is not a good thing in such sensitive times.  And yes, we may have to accept a fait accompli brokered in good faith by the Trustees, but if the outcome is limited to those 3 bullet points above, then that is a very good result indeed.

[Steve_2]

Couple of responses given by the pensions team in the consultation prior to closure Q&A document from 8th August 2007:

I understand that there is a plan and commitment for Halcrow to fund the HPS deficit over the
coming 15 years. If Halcrow is sold during that time what are the obligations (if any) for a
prospective purchaser to continue funding the deficit.
Any prospective purchaser would be obliged to fully fund the deficit, either by a one off payment to meet
the deficit in full, or by regular contributions agreed with the scheme actuary and the trustees.

Can the company come back at a later time and make further cuts to our accrued final salary
benefits?
No, the benefits accrued cannot be cut back further...

[John Ratsey]

The court judgement is here for those who want to study it. There's a lot to read.

[hartepr]

I essentially agree with Phil Alexander's comments.
I believe that the Trustees are doing their very best for members in very difficult circumstances and deserve our thanks. 
My further comments are as follows:
There is no prospect of any new scheme, "HPS2", being accepted by all members as contact with some members with deferred benefits has been lost. An alternative solution doesn't look easy. If it had been easy then Hill and the Trustees would have adopted it in preference to the course of action they chose. To quote from the judgement "In fact, it is suggested that unless the Transaction is completed, HGL will be placed into administration and as a result HPS will in all likelihood go into the PPF". The "joint letter" dated 29 April says "the parties to the court case are continuing to work together to find a different solution that still achieves the objectives of the original proposal." We must hope that they are successful.
In any event our entitlement to increases in the future under HPS2, as disclosed in the written judgement but not in the "joint letter", would have been limited to "the statutory minimum". So this may be the best we can hope for.
Under the terms of "the Transaction", CH2M would guarantee HGL's payment obligations but there would be a cap of £120 million. Contributions from Hill would be £5.5 million per annum. This is significantly less than the current level.
We have not been advised of the cost of legal, actuarial and other professional fees to HPS resulting from the efforts to get a resolution. These must be very high and will continue until a resolution is found. There may not be much or any change out of £1m. The HPS accounts may give us a clue as to the scale of these costs. But the accounts for 2014 have not been published and are overdue. The accounts for 2015 are not yet due.
It is puzzling that Hill paid over £100m for Halcrow in 2011. The pension deficit was already large and growing. And Halcrow's financial situation, as shown later in the accounts for 2011 and subsequent years, was dire. This should have been evident to any purchaser. If Hill had not bought Halcrow, there is every prospect that the group would have gone into administration at the end of 2011 or in 2012. We would have received four or five fewer 5% increases than we have done. And there would have been no distribution to eligible employees and pensioners from The Halcrow Trust.

[Adam Schofield]

Sadly Steve King's post above illustrates we should read any information provided with a degree of wariness about its ultimate truth. Despite, I am sure, the best intentions at the time.
David Slater asked several excellent questions during the AGM – but alas we don't seem to have many answers between us. It seems to me that there are 2 key issues:
a)   whether there is another option for CH2M/Trustees to force a change on members. 
I doubt it since as HPS effectively stated themselves in 2007, retrospective benefits can't be changed (unless by individual agreement). If so, then we can probably expect a forthcoming communication to help persuade us to accept a change to our benefits, with a repeat (or new?) guarantee from CH2M. The second key issue is:
b)   whether such "guarantee" has both a permanent legal obligation and is a definitive sustainable financial commitment to the end of the life of HPS.
If not, then from my perspective, why bother. I may as well take the risk of falling into the PPF.
We should also bear in mind that CH2M [Halcrow] operate in a competitive market, and other competitors have either found a way to fund their DB schemes or presumably gone insolvent.
Last comment – many thanks to those volunteers on the committee and the organising of the AGM. Its all appreciated.

[John Ratsey]

If not, then from my perspective, why bother. I may as well take the risk of falling into the PPF.

See para 135 of the Court Judgement: "Having considered that advice the Trustees concluded that they still wished to proceed with Project Gravity although there would be a higher number of members in HPS2 receiving benefits at around 100% of PPF compensation. There would still be a significant number of members who would be better off."

There's a lot of useful background information in the Court Judgement document so it's worthwhile browsing through it.

We should also bear in mind that CH2M [Halcrow] operate in a competitive market, and other competitors have either found a way to fund their DB schemes or presumably gone insolvent.

Some of the competitors looked into their crystal balls and then took action. I recall that Mott-Mac closed their DB scheme at the turn of the century (I was working on a combined Halcrow-MM project at that time when their staff were informed of the change). Halcrow hoped that the funding problem could be overcome by growing the company - I recall attending a presentation about the strategy in 2002 or 2003.

[Tony Hoyle]

I agree with Philip's analysis and conclusions, although I have not yet read the court judgement.

I would like to add that during my time with Halcrow I have known all the trustees and believe them to be trustworthy people who will act with integrity in the best interests of all HPS members - aren't they all also members? I would also like to pay tribute to Paula Gibbons who works diligently for us all.

I would also like to express my gratitude to the HPA committee for keeping this forum going.

(By the way, I'm sorry I was unable to vote during the AGM this year; I would have voted for all the motions).

Tony

[Steve_2]

b)   whether such "guarantee" has both a permanent legal obligation and is a definitive sustainable financial commitment to the end of the life of HPS.
If not, then from my perspective, why bother. I may as well take the risk of falling into the PPF.

Adam, that was my first reaction, but PPF comes with few guarantees, and is largely self funded from closed schemes. I think over time the not guaranteed 90% cap for those not yet pensioners, and the various rates of accrual will likely reduce. I would think that HPS2 has potential to offer a better "guarantee" (para 135 as John highlights). Even though there will always be a risk of entering PPF, or getting less than 100% from HPS2. As others have said, the Trustees are doing a good and difficult job.

I can see the funding situation calculated is now very different to what it was in 2007 when those promises were made.

I'm not sure if a third option for those in deferment, of accepting a transfer value would prove popular. Personally I think it worth retaining a Defined Benefit component (however big) alongside my other pots.

[John Ratsey]

My attention has just been drawn to this relevant news report.

I thought that the Halcrow payroll (or are they now CH2M payroll?) was over 3,000 but that report says 2,500. It's also unclear to me how much work Halcrow has in its own right rather than work won by CH2M.

[Jane Tordoff]

How do you read this without signing in?

[John Ratsey]

How do you read this without signing in?

Ah! it's one of those pages which Google can get to but the direct link doesn't work. I attach a PDF version.

Also see this BBC news feature (which isn't hidden behind a paywall). Bob Scott has some first-hand knowledge of HPS as he has been the scheme actuary since at least 1998 (he's named in the 1998 HPS report to members). However, the comments by John Ralfe seem to be closer to the situation with HPS.

[Steve_2]

I thought that the Halcrow payroll (or are they now CH2M payroll?) was over 3,000 but that report says 2,500. It's also unclear to me how much work Halcrow has in its own right rather than work won by CH2M.

Hi John, the approximate head count quoted in the Halcrow circular to members is the correct one (corresponding to named individuals) for Halcrow Group Ltd. I believe all will have Halcrow Group Ltd named as the employing entity in their contracts.

Edit-Yes payslips say Halcrow

[John Ratsey]

Hi John, the approximate head count quoted in the Halcrow circular to members is the correct one (corresponding to named individuals) for Halcrow Group Ltd. I believe all will have Halcrow Group Ltd named as the employing entity in their contracts.

Edit-Yes payslips say Halcrow

Thanks for the clarification abut the employment status.

The HPS circular of 29 April mentions 4,000 staff but I suspect that was the number when the dialogue about HPS started. Page 19 of the 2014 Halcrow Group Ltd annual report states "The average number of persons, including directors, employed by the company during the year was 2,488" while the corresponding number in the Halcrow Holdings annual report (page 23) is 4,029. I'm confused!

[Steve_2]

Thanks for the clarification abut the employment status.

The HPS circular of 29 April mentions 4,000 staff but I suspect that was the number when the dialogue about HPS started. Page 19 of the 2014 Halcrow Group Ltd annual report states "The average number of persons, including directors, employed by the company during the year was 2,488" while the corresponding number in the Halcrow Holdings annual report (page 23) is 4,029. I'm confused!

Sorry, me getting confused about names. The number referred to was for All Halcrow companies. Halcrow Holdings being the Parent CH2M bought. I don't know the number for Halcrow Group Ltd on it's own.