Building Magazine Interview
Building Magazine 15 July 2012
Under the headline “Pension problems: Don't look now” Will Hurst of Building Magazine writes about the 200 final salary pension schemes of UK construction firms with liabilities totaling £33 bn. He cited the example of Currie and Brown, who transferred their pension scheme’s £31 million deficit to the Pension Protection Fund before selling to the Dar group.
The article also cites the case of Halcrow, whose pension deficit of £149m on an ongoing basis would, according to risk management firm Towers Watson, cost around £410m to off-load. They are not alone: Atkins pensions’ deficit was almost twice as much at £293m as of March 2010.
Despite its size, many chief executives and financial directors have been tempted to ignore the pensions’ problem because of its 20 to 30-year timeframe. Pensions’ expert Richard Farr of BDO warns that this attitude is a mistake and foresees that the next 5-10 years will see a massive risk-transfer either to insurance companies or to the PPF.
Halcrow’s case is discussed at length, based on an interview with Stephen Brichieri-Colombi, Chairman of the Halcrow Pensioners Association, who received over 1500 e-mails from 200 members of the HPS during the takeover of Halcrow by CH2M-Hill in November 2011. He argued in the High Court that the directors should find a scheme of arrangement that assigned a significant proportion of the purchase price to the reduction of the pension deficit, rather than distributing proceeds to the Halcrow Trust. In court, it emerged that the trustees had warned Halcrow chief executive Peter Gammie, the director with the largest shareholding, that the scheme was “significantly underfunded and had been for many years”, but that Gammie had countered by saying Halcrow shareholders have no ability to invest in the business in a meaningful way or to support it financially. Mr Justice Vos at the High Court voiced concern over the failure to tackle the deficit, arguing that the Halcrow Trust’s remit meant it could “be expected to regard the preservation of pension benefits for its past and present employees as a major priority.”. He nevertheless approved the deal, noting it had overwhelming support from shareholders and that Colombi had not produced “hard evidence” of damage to the scheme. The article also noted that the Pensions Regulator also declined to intervene following an inquiry into the situation, although it is still monitoring the deficit through the trustees.
A spokesperson for Halcrow is quoted as saying: “CH2M Hill has stood behind the agreed recovery plan and the schedule of contributions to address the Halcrow Pension Scheme deficit. Since the acquisition, the previously agreed payment schedule has been honoured every month, including the planned uplift in contributions in 2012.”
Brichieri-Colombi stated that the purpose of the Halcrow Pensioners Association, which has its own website and a growing body of members, is to keep the trustees on their toes and to try to ensure they act in pensioners’ interests.
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Commenting on the article, Steve said it was important to keep up the fight through the HPA: as Farr has noted, the risk of being transferred to the PPF is a real and present danger. We did what we could to prepare a case for restructuring the bid before the High Court once we were given sight of the evidence on the Friday evening before the case was heard the following Monday morning, but time was against us. Had we been better organized, we could have done better – even the Pensions Regulator indicated they would be in court after they heard from us what had happened on the Monday, but they could not mobilize a barrister in time. We have to be better prepared in future. While we are pleased to note that Halcrow have reiterated their pledge to support the HPS both in court, and in this article, we have to be vigilant. The Trustees of the HPS are appointed by the company, and the pensioners have little power to influence them unless they get as organized as, for example, the pensioners of the Mirror Group. It comes as a great disappointment that the trustees will not even advise pensioners of the existence of the HPA (see separate story). If we do get transferred to the PPF, it should not be because we have failed to make an effort to protect our own interests.
Although the Building article referred to the PPF as being a Government backed scheme, the backing does not include a financial guarantee. The PPF has limited resources, and if Farr is right, they will be stretched very thinly in a few years’ time. The PPF does not pay full DB pensions even now, and it has the legal right to reduce them even further if necessary.
Link
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