The Construction Confederation has gone bust, leaving a £20m deficit in its pension fund and hundreds of people who stand to lose up to 70% of their retirement income. The situation is extremely depressing for those affected, but it’s not a scandal. It’s not a tale of incompetence or deceit. It’s just the way things are now: many businesses are staring into unfeasibly large pension black holes – the Royal Mail is £3.4bn short, and BA has to find £3bn. More and more, deficits are emerging as the deciding factor in whether businesses thrive, merge or wither. It’s well known how we got ourselves into this mess: we’ve started living 10 years longer, the stock market has not performed well and we have a tax regime and financial regulations that have made it nigh-on impossible for funds to operate at a surplus when times are good. Indeed, many firms took payment holidays, which later proved disastrous. Not surprisingly, companies have responded to their deficits by rushing to close defined benefit schemes (which attached fixed obligations to them) and replace them with the money purchase model, which places the risk on the employee.
The CC simply followed this well-trodden path. By the end, it was spending half its membership fees on its pension fund. This was not exactly ideal, but was bearable if the large contractors helped to carry it. Obviously, that was a big if: as soon as the big spenders left to form the UK Contractors Group, the confederation’s spine snapped like a twig.
The pension fund’s trustees have spent the last year trying to find a way to meet their obligations, and as a result they have brought in the lawyers. This has attracted criticism from some, who argue that it’s just throwing good money after bad, but the trustees have little choice. Unlike members of most UK funds, the 500 people belonging to the CC scheme don’t have the backstop of the Pension Protection Fund (PPF), which was set up to help the pensioners of companies that have become insolvent. Unfortunately, however, the CC is not a company; its legal status is more like a members’ club, so it’s not clear where it stands.
The trustees are hoping a court will rule that it is eligible for help from the PPF – although this might be a long shot, particularly as it hasn’t been paying the fund’s levy. Even if it is successful, future pensioners will be limited to 90% of what they would have got, up to a limit of £30,000, and they will not get any annual increases. The position of workers employed by the Home Builders Federation (HBF) is even worse; the HBF used have its pensions handled by the CC but left, which meant its £3.6m deficit is classed as a separate account, and because the HBF is not insolvent, its members can have no hope whatever of a PPF bailout.
The outlook for the 500 or so people affected is not looking good. The former member bodies of the CC have little cash, so the lawyers will have to pursue their members, or their members’ members … but again we’re on virgin legal ground. Even if the law is grey, the moral dimension is surely a little more black and white. Many of those affected were at the CC for most of their working life and quite reasonably trusted their employers to look after them: after all, the CC had been around for more than a century so ought to be reliable enough.
We know times are tough all round, and if some companies or trade bodies are compelled to make a contribution, that may mean that some people are made redundant. But can those firms that have enjoyed the support of tax expert Liz Bridge and her colleagues over many years simply turn their back and pretend it’s someone else’s problem?