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tim2

Carillion - gone?

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Looks like it's finally happened.

http://www.bbc.co.uk/news/business-42687032

It's always hard to say what causes a major business to get into such trouble so I'm not speculating.

Sympathy is extended to everyone who is affected by this. A lot of people will lose their income (at least for now) and some of their pension.

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1 hour ago, tim2 said:

It's always hard to say what causes a major business to get into such trouble so I'm not speculating.

Fairly obvious in this case.

You'd hope that the UK parts of the business, which were running at a profit, will be able to be sold on by the official receiver and employees don't lose their jobs.

It does show that sometimes the government gets a decent deal on PFI contracts.

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1 hour ago, tim2 said:

Looks like it's finally happened.

http://www.bbc.co.uk/news/business-42687032

It's always hard to say what causes a major business to get into such trouble so I'm not speculating.

Sympathy is extended to everyone who is affected by this. A lot of people will lose their income (at least for now) and some of their pension.

Listening to the news this morning, it looks like employees will continue to be paid in the short term by the government, at least..

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1 minute ago, Futtocks said:

Listening to the news this morning, it looks like employees will continue to be paid in the short term by the government, at least..

This appears to apply to the public sector work but there has been no mention of private sector employees.  Was Carillion involved in much private sector work?  It seems to have done an awful lot of public sector work.  

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Based on an interview with the new Cabinet Secretary just, it seems the government have been planning for this outcome for some time.  

Apparently some of the finance problems for Carillion have been based in the drop in work in Saudi Arabia.

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36 minutes ago, Futtocks said:

Listening to the news this morning, it looks like employees will continue to be paid in the short term by the government, at least..

What about the employees of the debtors and sub-contractors, and the owners of those businesses?

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It always puzzles me that, when a big company goes bust, there is always a reported shortfall in the pension fund. Are such funds not protected and, if not, why not?

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6 minutes ago, tonyXIII said:

It always puzzles me that, when a big company goes bust, there is always a reported shortfall in the pension fund. Are such funds not protected and, if not, why not?

It's not a shortfall against their current pension obligations it's against their predicted future ones. They haven't been using the cash for something else. It's basically saying that the overall predicted future pension payments to scheme members (including some who may be 30 or 40 years off retirement) would require a fund worth £X, but the current fund is only worth £Y. It's a notoriously difficult thing to predict as it is constantly changing due to existing pensioners dying and not receiving any more payments, new retirees starting to draw down their pensions and new employees starting to make contributions. Nobody in any company anywhere knows their true future pension liabilities as it's all based on assumptions of stock market performance, inflation and other economic indicators. If those things perform better than expected the deficit reduces, if they are worse then the deficit increases.

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It's not a shortfall against their current pension obligations it's against their predicted future ones. They haven't been using the cash for something else. It's basically saying that the overall predicted future pension payments to scheme members (including some who may be 30 or 40 years off retirement) would require a fund worth £X, but the current fund is only worth £Y. It's a notoriously difficult thing to predict as it is constantly changing due to existing pensioners dying and not receiving any more payments, new retirees starting to draw down their pensions and new employees starting to make contributions. Nobody in any company anywhere knows their true future pension liabilities as it's all based on assumptions of stock market performance, inflation and other economic indicators plus predicted average life expectancies. If those things perform better than expected the deficit reduces, if they are worse then the deficit increases.

Edited by Derwent

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1 minute ago, Derwent said:

It's not a shortfall against their current pension obligations it's against their predicted future ones. They haven't been using the cash for something else. It's basically saying that the overall predicted future pension payments to scheme members (including some who may be 30 or 40 years off retirement) would require a fund worth £X, but the current fund is only worth £Y. It's a notoriously difficult thing to predict as it is constantly changing due to existing pensioners dying and not receiving any more payments, new retirees starting to draw down their pensions and new employees starting to make contributions. Nobody in any company anywhere knows their true future pension liabilities as it's all based on assumptions of stock market performance, inflation and other economic indicators. If those things perform better than expected the deficit reduces, if they are worse then the deficit increases.

True but you rarely hear of a surplus do you?

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1 minute ago, Bedford Roughyed said:

True but you rarely hear of a surplus do you?

You will not get a surplus for a few decades until the last recipients of final salary pensions have died. It is, by and large, companies that at some point had final salary schemes that have the largest deficits as they were seriously underfunded.

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According to a friend of mine subbies are breaking into sites to get there gear back this morning 

Edited by Phil

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Thanks to Derwent for the explanation. The news services always make it sound like someone has had their fingers in the till. Seems it's a bit more complicated than that.

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4 minutes ago, Bedford Roughyed said:

True but you rarely hear of a surplus do you?

You used to. Companies used to take "holidays" from paying into the scheme because there was such a big surplus.

As Derwent explained, the problem is that the future liabilities are very big and hard to calculate and change by large amounts depending on factors outside the company's control. Pension funds can't invest solely in shares, they have to hold corporate bonds and government gilts. In the current interest rate climate, the amount paid by those government gilts is very low and the fund would need to be several times larger to get the same income from them.

Many well known companies (BT is an example, but there are many more) are effectively massive pension schemes with a business attached. They closed the fund to new members in 2001, but the existing obligations completely dwarf the business itself. You won't find many companies offering defined benefits pensions any more - it's all defined contributions, where the company pays a certain percentage of salary each month into each person's pension.

This is one of the reasons why people are starting to get angry about public sector pensions - they are exceptionally generous and secure compared to private sector. In the case of senior civil servants, GPs, MPs etc. they are at a level that even the highest paid private sector employee cannot match.

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19 minutes ago, ckn said:

It is being investigated I believe. There was a lot of short selling in Carillion months before the profit warnings last year, which potentially indicates that inside information was being illegally leaked to someone ahead of time. I doubt anything will come of it though. Not a political scandal or a factor in the company failing though.

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7 minutes ago, JonM said:

This is one of the reasons why people are starting to get angry about public sector pensions - they are exceptionally generous and secure compared to private sector. In the case of senior civil servants, GPs, MPs etc. they are at a level that even the highest paid private sector employee cannot match.

Back when the nuclear industry was publicly owned and the workers were in the civil service pension scheme the employees were making a pension contribution of just 3% to receive a final salary pension that was a 40th scheme (versus 60th or 80th schemes in the private sector), and they could retire at 55. Someone earning £50k a year with 35 years service was getting a pension of £43,750 per year, plus it is index linked so rises exponentially with inflation. If they got 40 years in they effectively retired on the same pension as their salary.

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2 minutes ago, JonM said:

It is being investigated I believe. There was a lot of short selling in Carillion months before the profit warnings last year, which potentially indicates that inside information was being illegally leaked to someone ahead of time. I doubt anything will come of it though. Not a political scandal or a factor in the company failing though.

A lot of people think insider trading and information leaking is a high-risk or covert thing.  In the majority of cases it's not, all it needs is someone overhearing something they shouldn't, say in a Starbucks, or putting 2 and 2 together.  Over-trading, lengthening credit terms, management confusion, political interference and so on were big indicators for someone like Carillion that their shares were overpriced.  For example, a lot of hedge funds have taken positions against companies with HS2 contracts, betting that HS2 will be cancelled or scaled back.

Our corporate insolvency laws are also quite brutal with UK attitudes that once a company is in insolvency that it's gone.  Compare that with US insolvency where Chapter 11 often gives companies a way out through restructure and a good level of protection from the state.

Just a side-rant, the amount of REALLY compromising stuff I've heard in the Starbucks and Costa Coffee places in London keeps surprising me.  You have a lot of egos in London with people wanting to prove to their contacts how important they are and how much secret stuff they know, and they're happy to tell their contacts this in public places.  I couldn't count how many times I've heard "you can't tell anyone this but..." with a corporate secret following.

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18 minutes ago, JonM said:

This is one of the reasons why people are starting to get angry about public sector pensions - they are exceptionally generous and secure compared to private sector. In the case of senior civil servants, GPs, MPs etc. they are at a level that even the highest paid private sector employee cannot match.

Not really these days.  Take the new NHS pension scheme, the contributions are costed to actually pay their own way long term.  I'd doubt any but the most conscientious of private sector employees put in as much as NHS employees must if they want a NHS pension.  For short-term, the employer component pays for it; for long-term, the amount paid by the employee if properly invested would pay its own way in retirement.  It's not the employee's fault that the government don't ring-fence that money and have a sovereign pension fund.

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47 minutes ago, Phil said:

According to a friend of mine subbies are breaking into sites to get there gear back this morning 

Tarmac (Carillion's core founder) were notorious for "screwing the subbies."  It was the QS's job to do this.

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10 minutes ago, ckn said:

Not really these days.  Take the new NHS pension scheme, the contributions are costed to actually pay their own way long term.  I'd doubt any but the most conscientious of private sector employees put in as much as NHS employees must if they want a NHS pension.  For short-term, the employer component pays for it; for long-term, the amount paid by the employee if properly invested would pay its own way in retirement.  It's not the employee's fault that the government don't ring-fence that money and have a sovereign pension fund.

They've certainly put the NHS  contributions up to something more realistic (14% I think?) but still, a GP gets a pension that is literally now unachievable in the private sector because of the lifetime allowance rules. Unintended consequence of those pension rules, of course, is that many GPs are strongly incentivised to go part-time or retire early because they will be paying punitive tax rates once they hit the pension lifetime allowance.

Whole thing is a tricky area, any changes which are made have to be done slowly, over the course of decades to give people time to prepare. The UK government has done a far better job of managing this stuff than most others (Equitable life situation excepted) but it's still going to be difficult.

Anyway, point was not to sidetrack from Carillion, just to explain why they would have a big pension fund deficit, inherited from business they acquired.

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1 minute ago, Trojan said:

Tarmac (Carillion's core founder) were notorious for "screwing the subbies."  It was the QS's job to do this.

Subcontractors always going to get the thin end of it when someone goes bust. Certainly won't be getting any money they're owed and getting hold of your equipment seems pretty prudent.

Works both ways of course. Our new HQ is being built by a competitor of Carillion; they're going to be 2 years late (and have a big penalty payment), we're currently renting 10 temporary offices to hold staff hired since the start of the contract. So both parties out of pocket for millions. The sub-contractor responsible for the problems simply went bust (and re-started as a new company with same staff & directors.)

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