Facilities management and construction organisation Carillion is to withdraw annual discretionary increases in pension payments in order to reduce its pension deficit by £80 million.
The discretionary increases in pension payments, which were capped at a maximum of 2.5%, were applied annually for members of the Carillion Staff Pension Scheme, for pensions earned prior to 1997.
Carillion is also in discussion with its principle pension scheme trustees to debate new measures that can help the organisation cut an additional £120 million from its pension deficit. This includes basing any future pension increases on the Consumer Prices Index (CPI) rather than the Retail Prices Index (RPI).
Keith Cochrane, interim chief executive at Carillion, said: “The strategic review that we launched in July has enabled us to get a firm handle on the group’s problems and we have implemented a clear plan to address them. Our objective is to be a lower risk, lower cost, higher quality business generating sustainable cash backed earnings. In the immediate short term, our focus is to complete the disposal programme, accelerate our action to take cost out of the business and get our balance sheet back to a place where it can support Carillion going forward.
“No one is in any doubt of the challenge that lies ahead. We have made an encouraging start and the ambition is there to build on that progress. At the heart of this company, there is a strong core. Supported by an operating model that manages risk much more effectively and led by a fresh management team with a mandate to drive cultural change, I am confident that a strong business can emerge.”
Laith Khalaf, senior analyst at Hargreaves Lansdown, added: “It looks like Carillion employees, past and present, are going to take some of the strain of the current crisis enveloping the [organisation], which is planning to water down [its] pension benefits to rise at a lower rate of inflation, subject to trustee approval. This would bring members in line with public sector and some other private sector schemes, though such changes are never welcome, particularly when they are prompted by disappointing business performance.”