Global Pension Ponzi - Carillion Collapse One Of Many To Come

Pension Crisis And Deficit of £2.6B At Carillion To Impact UK Pensions

- Carillion collapses leaving a £900 million debt pile and 30,000 pensions at risk
- Carillion PLC share price has collapsed 94% in last twelve months
- Private analysis of Carillion's pension deficit reveals it to be as high as £2.6 billion
- Figure adds to the UK's ongoing pension crisis, both private and state are severely underfunded
- UK's Private Pension Fund already has a levy of £550 million for next twelve months
- UK state pension crisis as state fund to be 'exhausted by 2033'
- Ensure your pension is funded and properly diversified with gold

Editor: Mark O'Byrne

Source: Wikimedia

The looming pension crisis has been signalled in the collapse of Carillion. The deficit of latest private sector dead-on-arrival Carillion is officially £580 million. However, private reports suggest it could be as high as £2.6 BILLION.

According to a Sky News investigation: 'the £2.6 billion figure relates to the cost to Carillion of paying an insurance company to guarantee all of its pension liabilities, and is significant because it is likely to be the sum claimed on behalf of the pension schemes as part of the liquidation process.'

Nearly 30,000 UK workers' pensions are at risk thanks to Carillion management's total mismanagement of a company that has seen its share price collapse 94% in the last 12 months.

Carillion’s 27,500-member pension scheme was placed on an 'at risk list' in autumn 2017. Arguably, it like many other pension funds should have been there many months ago.

Sadly, Carillion is just the latest in a very long string of serious company collapses that have highlighted the major pension crisis in the UK and around the Western world. It also likely signals that we may be on the verge of many, many more very large corporate bankruptcies in the UK due to massive debt levels and unfunded liabilities.

This is not a situation unique to the private sector. It will be repeated in the years ahead - both in the public and the private sector.

In November 2017, the OECD warned that the UK’s defined benefit workplace pension plans (final salary schemes) as ‘persistently underfunded’ and the state pension as seriously lacking.

Everyone is exposed by this and it emphasises the importance of saving for retirement and ensuring your pension is both funded and properly diversified.

These ongoing disasters in the UK's pension pots are also a threat to the efforts of prudent individuals who have worked hard to set aside enough for their hard-earned retirements.

Private Pension Fund Palaver

The UK's Private Pension Fund estimates that it will cost around £900m to cover the costs of the Carillion pension schemes. The idea of the PPF is that it is funded by liquid private companies who offer private pensions, as a sort of insurance should a Carillion-esque disaster strike.

The PPF rescue of Carillion pensioners is not a full-blown well-equipped life boat rescue, it's more of a rubber dinghy and a metallic blanket. The rescue fund will pay current Carillion pensioners lower cost-of-living increases than they have been used to, and slash the eventual payments of those who aren’t yet retired.

The Telegraph explains the current state of the PPF:

As of March 2017, the PPF had £28.7bn in invested assets, and cash reserves of £6.1bn. It has a funding ratio – the fund’s assets versus its liabilities – of 121pc. The PPF is the backstop for final salary schemes, which pay guaranteed, inflation-proofed pensions for life.

At the moment (without the Carillion liability) the levy from the PPF is £550m. With this new expense companies who have their own defined-benefit schemes (and therefore must pay into the fund) will see their reviews increase. What damage will this do to the wider economy? How sustainable is a fund that is designed purely to rescue unfunded and bankrupt pension funds?

Why, if you are having to effectively-bailout the pension schemes of your failed contemporaries? Are you at all incentivised to invest in your own company, put up wages or even increase pension contributions yourself? It's not as though the PPF is filling its contributors with confidence that levies are going to go down any time soon.

The failure of Carillion is a stark reminder that more often than not institutional shareholders, management board members and (in this specific case) politicians act in their own interest, frequently short term, rather than stopping to think what the overall, long term impact of their actions will be.

Reports state that Carillion over 2015 and 2016, £162 million has paid dividends to shareholders, compared with just £94 million to address the pension deficit.

The UK's pension crisis 

Last year we brought you the news that a Pensions and Lifetime Savings Association report found that three million workers with final salary pensions have 50% chance of losing up to fifth of their income because their employers have made unaffordable promises.

We outlined:

The PLSA data finds the most vulnerable employers have a 50:50 chance of not having an insolvency event in the next 30 years:

“More than 11 million people rely on defined benefit pension schemes for some or all of their retirement income but there is a real possibility that without change we will see more high profile company failures such as BHS or Tata Steel.”

Former pensions minister Steve Webb told City A.M. that he agrees:

“It’s not enough money. It’s just brutally not enough money going in,”

Just this week FCA Chief Executive Andrew Bailey made a point of the dangers looming for retirees, in his annual Mansion House speech:

“There is a clear risk that the savings rate for retirement is for many people too low to meet their expectations of retirement.”

The Carillion debacle will just add to this drama. The Private Pension Fund will once again have to step in and cover the expenses of the company's 13 pension schemes.

Of course, at the moment all of the headlines are all about Carillion's pension disaster. But what about the hundreds of sub-contracting firms who have their own schemes to cover? And are no longer going to be paid?

The ripple effect of the downfall of this firm will be far and wide. Yet again the mismanagement by the few will end up having an effect on the many. The pension crisis disaster could leave multiple pension pots unfunded and thousands of people bankrupt.

Private pensions are not alone

Many Brits and Europeans have more than one pension and this includes the state pension. For those in the United Kingdom, this is sadly also under threat.

Back in December, we brought you news of a report from the OECD that found those Brits planning to rely solely on their state pension will be left 'with few resources.' So bad is the situation that the body felt the need to remind politicians of the importance of long-term planning over short-term policy gains.

Inevitably, it is the tax payer who ends up forking out for government mistakes when it comes to misspending. Earlier this month the Government Actuary Department (GAD) said the rate of National Insurance (the manner in which Brits contribute to state pensions)  may have to increase by as much as 5% in order to maintain the stability of the state pension fund.

This is bad news for both worker and employer. Estimates suggest this increase could add an additional £120 and £138, respectively in contributions from each party.

Furthermore, the lack of money means more time is required to have enough for retirees, therefore there is a suggestion that the retirement age is increased once again. This would be a measure to avoid increasing taxes.

GAD warned:

'There won't be enough coming in from National Insurance to cover the cost of paying the state pension...

'To stop that happening, NI contributions have to go up or the government will have to make changes to the state pension or the age it is paid from.'

However, even with this and recently announced changes to minimum pension contributions the Department of Work and Pensions estimate 38% of the UK workforce are under-saving for retirement.

So for those who are saving and working, this is no doubt yet another cost that will come back to bite you no matter how responsible you have been with your own pension pot.

When it comes to your pension, beware who you trust

It is vital that savers and investors begin to take responsibility for their own pensions and ask questions. Most importantly one must ask if you can hold gold as part of your pension.

Gold should be a key part of your pension portfolio. At the moment UK pensions are at threat not just because of Carillion-esque disasters or bad planning by governments, but indirectly due to likely being used to bail-out pension pot implosions. Gold cannot be taken by governments or banks looking to top up their coffers.

The economy shows that whilst stock and bond markets have done well in the short term, they are artificially overvalued. Once again this is with thanks to the easy monetary policies of central banks and governments. So whilst readers may think they are in well-funded pension pots, or have some level of protection, where is the real value coming from?

Gold will protect in coming pension crisis

This is where gold plays a key role.

Dr. Constantin Gurdgiev, formerly an adviser to GoldCore, says the following about the importance of having gold in your pension:

“Gold is a long-term risk management asset, not a speculative one.

As such it should be analysed and treated predominantly in the context of its role as a part of a properly structured, risk-balanced and diversified portfolio spanning the full life-cycle of the investment and pension horizon for individual investors and those with pensions.

Whether they be SIPPs in the UK or IRAs in the USA.”

Investors in the UK and Ireland, the US, the EU can invest in gold bullion in their pension, through self-administered pension funds.

UK investors can invest in gold bullion through their Self-Invested Personal Pensions (SIPPs), Irish investors can invest in gold in  Small Self Administered Schemes (SSAS) and US investors can invest in gold in their Individual Retirement Accounts (IRAs).

The pension crisis is a multi-trillion pound crisis. It is not going to go away. Adding physical gold to your pension is a key way to protect your retirement from the pensions time bomb.

As is owning physical gold outside a pension fund and as a hedge and safe haven, store of value.

Pension funds, throughout the West, have a distinct lack of diversification when it comes to assets. This has cost pension holders a huge amount of money and places their future viability at risk.

Gold bullion has an important role to play over the long term in preserving and growing pension wealth. Read our guide about how to own gold in a pension (CGT free) in the UK here.

 

Recommended reading

UK Pensions Risk – Time to Rebalance and Allocate to Cash and Gold

Survey shows UK and US Pensions Crisis is Imminent

Pensions and Debt Time Bomb In UK: £1 Trillion Crisis Looms

 

News and Commentary

Gold steady; U.S. govt shutdown worries investors (Reuters.com)

Stocks Mixed, Dollar Flat With Shutdown in Focus (Bloomberg.com)

Palladium flows from west to east to meet industry demand (Reuters.com)

METALS START THE WEEK ON A STRONG FOOTING (BullionDesk.com)

Gold steady, palladium looks set to stay on the boil (BusinessLive.co.za)


Source: Statista

Risk of US government shut down as US 10 year rises above 2.6% (MoneyWeek.com)

Property Bubbles In Australia, Canada; Flying Blind at 20X as China Chills (MouldinEconomics.com)

Why A Hard Brexit Could Be Inevitable (ZeroHedge.com)

Silver as a Strategic Metal and Why Prices Will Soar (SilverSeek.com)

Futures exchange operator details discounts for secret trading by central banks (CMEGroup.com)

Gold Prices (LBMA AM)

22 Jan: USD 1,334.15, GBP 959.12 & EUR 1,087.87 per ounce
19 Jan: USD 1,335.80, GBP 960.17 & EUR 1,087.74 per ounce
18 Jan: USD 1,329.75, GBP 961.14 & EUR 1,088.40 per ounce
17 Jan: USD 1,337.35, GBP 969.45 & EUR 1,092.48 per ounce
16 Jan: USD 1,334.95, GBP 970.38 & EUR 1,091.32 per ounce
15 Jan: USD 1,343.00, GBP 971.93 & EUR 1,092.93 per ounce

Silver Prices (LBMA)

22 Jan: USD 17.04, GBP 12.25 & EUR 13.90 per ounce
19 Jan: USD 17.04, GBP 12.27 & EUR 13.89 per ounce
18 Jan: USD 17.09, GBP 12.31 & EUR 13.96 per ounce
17 Jan: USD 17.21, GBP 12.49 & EUR 14.10 per ounce
16 Jan: USD 17.10, GBP 12.43 & EUR 13.99 per ounce
15 Jan: USD 17.12, GBP 12.58 & EUR 14.14 per ounce


Recent Market Updates

- The Next Great Bull Market in Gold Has Begun – Rickards
- Gold Bullion May Have Room to Run As Chinese New Year Looms
- Digital Gold Flight To Physical Gold Coins and Bars
- Gold and Silver Bullion Are Only “Safe Investments Left” – Stockman
- Silver Prices To Surge – JP Morgan Has Acquired A “Massive Quantity of Physical Silver”
- London Property Crash Looms As Prices Drop To 2 1/2 Year Low
- Gold Bullion Up 1% In Week, Heads For 5th Weekly Gain As Bonds Sell Off
- Gold Prices Rise To $1,326/oz as China U.S. Treasury Buying Report Creates Volatility
- Gold Hits All-Time Highs Priced In Emerging Market Currencies
- World is $233 Trillion In Debt: UK Personal Debt At New Record
- 10 Reasons Why You Should Add To Your Gold Holdings
- Spectre, Meltdown Highlight Online Banking and Digital Gold Risks
- Palladium Prices Surge To New Record High Over $1,100 On Supply Crunch Concerns

Comments

The Alarmist LawsofPhysics Mon, 01/22/2018 - 11:20 Permalink

£2.6 billion on a buyout basis is rubbish.  Probably only £1.8 billion.

If you read the financial disclosures in their last annual report, they have taken steps the regulator would have viewed positively, e.g. the longevity swap (though in my opinion, those are a sucker's bet), but they were so behind the eight ball because their asset mix did not effectively hedge their rate exposure, and rates plunged, jacking up liabilities well in excess of asset increases (their 2016 returns were actally quite good).  If anything, you might say deficit recovery plan was a bit lax (running to 2029) because the deficit recovery payments would have crippled the company if the recovery period had been shorter, but the point about dividends is a very valid one, and the Trustees could have used TPR to gain some leverage on restricting dividends.

I would imagine their FRS figures are not far away from their Section 179 PPF basis values, so the hit to PPF is probably somewhat under £1 billion ... This will not cripple the PPF, but it will hurt.

You should let real professionals be The Alarmist.

In reply to by LawsofPhysics

NoDebt The Alarmist Mon, 01/22/2018 - 15:05 Permalink

Pensions:  Where "but I was promised!" meets the cold reality of "you fucked up, you trusted us."

Boys and girls, we still have DECADES to run on these pension fund collapses.  Private ones are so flimsy it's laughable.  The public ones are where the real fun is going to happen.  That iron-clad promise of a government-funded pension is going to rust like a sunken battleship at the bottom of the Pacific.

 

In reply to by The Alarmist

rgraf NoDebt Mon, 01/22/2018 - 16:43 Permalink

I doubt we have decades to run on these collapses. The banksters need the diversion of politics to go along with their enforcers, who, at the end of the week, justify their part in the mess by their paychecks. Plenty more will soon be counting on their pensions, since all the available money is more than promised to too many, and the need to prop up the stock market is the only trick the banksters know, other than war. Next step is nationalization of the pension funds. This is going to be a gully washer. The next economy will be a decentralized flea market, until people start paying attention to their needs, instead of trying to win the black friday shop-a-rama sweepstakes.

In reply to by NoDebt

GreatUncle Mon, 01/22/2018 - 10:55 Permalink

The globalist UK government made promises on so many things and it will renege on them all in the end.

People should not pay taxes to government but only pay for those services they need and that is in everything. Don't need no stinkin education? Then you don't pay for it.

Even though not yet retired I know my pension is long gone and you will never get back the money from government who stole it all. It was never going to be affordable especially when 1/2 million immigrants arrive into the UK YOY and are now entitled to a pension. Means far less to go round as they have not paid in for decades like many of us.

On top of that the politicians awarded themselves golden pensions, a pension far in excess of what ordinary people will ever have and I bet they are not underfunded neither.

Anything wrong with what I stated? If not then how to tackle it starting today.

How to make cuts to make pensions affordable? Losing a politician or 2 could help as the pension is no longer required.

Bemused Observer Mon, 01/22/2018 - 13:19 Permalink

I think the only smart thing would be to eliminate these pension schemes, and all the other little schemes that depend on taking money out of paychecks. Obviously, those who administer these programs are not able to do so, and pretty much everyone agrees they are now unsustainable in their current forms. Which means those continuing to take the money from paychecks are now STEALING it, because they know they won't be paying it back as promised.

End all of these things, and just pay your workers fairly for a job done. If you do that, and create an environment where savings are secure, you won't NEED pensions. The trend of pinching from the paychecks in order to provide for these workers in their old age began here in the US, as did healthcare coverage, as a way to reduce the amounts being paid to workers. Obviously they would have protested a straight pay cut, so they were offered things like 'health care coverage', Social Security and Medicare for retirement, and yes, union representation, in exchange for those pinched funds. It wasn't a bad deal at the time, and would still be ok now, were it not for the 'pinching' of those funds by Congress over the years. 

Now it is a mess, and cannot make those promises anymore. So it stands to reason that they should stop taking the money for them. ALL monies currently being 'pinched' should be restored to the people earning them. This would mean wages go up, and by a healthy amount. Restoring the value of those pinched paychecks would likely result in an average wage higher than the currently proposed 15 dollar an hour minimum. Probably a lot higher. You see, so many things have been skewed by our fraudulent system, including the actual VALUE of labor, so that most people don't have a realistic notion of what anything is really worth. It turns out that labor is NOT actually the red-headed stepchild of our economy, despite the prevalence of low wage jobs. Those 'low wages' are in fact an illusion, perpetuated by all of the taxpayer-funded programs designed to disguise labor's actual market value by subsidizing much of it through social programs originally designed for the actual poor. If you return the value of those things to that workers paycheck you'd find that 'wages' probably start at closer to the 30 dollars an hour range.

Of course, without the subsidies, the employers would be footing that entire bill themselves. As they should be.

pitz Mon, 01/22/2018 - 14:04 Permalink

Falling interest rates have hidden a lot of the insolvency, as bonds and stocks have appreciated faster than liabilities.  As rates rise, the situation is likely to be deadly for pensions.  The other scandal is that too many pension and insurance executives have been looting their respective companies and have been using "low interest rates" as an excuse for the resulting insolvency when their looting and inefficient operation is significantly at the root of the problem.  

Gringo Viejo Mon, 01/22/2018 - 14:05 Permalink

What folks don't seem to get is that these "pension funds" were always intended to collapse. It was just a semi-sophisticated con from the start. Here, let me hold your wallet for ya. Come back in 20 years and there'll be more money in it  for ya. Wait until this market collapse wipes out the 401s and IRAs. Then you're really going to see a rending of garments and gnashing of teeth.

 

Golden Phoenix Mon, 01/22/2018 - 14:13 Permalink

I know you're concerned but don't be - all managerial bonuses and CEO golden parachutes remain intact. 

We put the entire pension fund in Bitconnect so don't forget to roll your referral bonuses over into BCCX. 

Pensioner deposits into BCCX will be compulsory as usual. 

Kayman Mon, 01/22/2018 - 14:40 Permalink

Zero bound interest rates have made many idiotic business decisions profitable.

I've even heard there are companies that have spent all their cash and borrowed money to buy back their own shares- but I can't believe it.

radbug Mon, 01/22/2018 - 16:16 Permalink

Nigel Farage's trailer billboard ... hordes of ... able-bodied elderly. Don't say you weren't warned. The fertility rate in Australia fell below 2.1 in 1976. So the question remains, after 40 years, namely, what will the economy that employs both the able-bodied elderly AND the young job entrants look like?

east of eden steelrules Mon, 01/22/2018 - 18:26 Permalink

Perhaps, but I do not see a date on that article so I dismiss it. I know, being a pension recipient from the Ontario Public Service that 'most' large pension systems have managed to recover their unfunded liabilities over the last 10 years.

Frankly, I put the CFIB in the same class as the Fraser Institute. In other words, people who will lie about anything. I remember well in the early nineties when Catherine Swift and Tom D'Aquino pranced around the Canadian media swearing up and down that if Canada didn't have NAFTA and Global Free Trade that we would go down the tubes. Well, the only thing they didn't bother to mention was that it was and still is IMPOSSIBLE for SME's to compete with foreign countries that pay their workers $2.00 a day and no benefits. Then there is the 25% added costs that we incur in Canada for heating and lighting. While I agree that trade is good, I fail to see how having the choice of 25 different fish sauces, all imported, helps me in any way. Does it improve my life to have so many choices of a basic commodity? NO, not at all.

The whole idea of 'just in time' manufacturing is nothing more than an accountants wet dream. It only works when oil prices are low, and anyhow, no one has ever sold me on why it is so important to be able to order a brake cylinder from Japan at noon Eastern time and have it in the shop the next morning. The entire system is simply too costly and much too prone to disruption/failure. It makes much more sense to offer low cost rentals or loaners to customers and then wait for a more efficient and cost effective delivery by sea, or even better, restore the bloody local industries that make the parts. In a country like Canada, where being without a critical part can literally put your life at risk, doing anything else is fool hardy.

For the rest, the ones that did not discharge their fiduciary duties, there is jail.

In reply to by steelrules

east of eden Mon, 01/22/2018 - 18:22 Permalink

This all boils down to one thing. The 'rich' in England, as elsewhere, are not paying their taxes, are not paying a legitimate tax rate (thank you M. Thatcher you fucking bitch) and as the Panama Papers showed, most of the hoi-poloi, including the previous Prime Minister are perfectly comfortable hiding their wealth in offshore accounts. 

As far as I'm concerned, this is a matter of criminality, and everyone found cheating on taxes should not only have twice their tax liability confiscated in assets, but, they should also do some serious prison time. EVERYONE OF THEM.

ZIONISM KILLS Mon, 01/22/2018 - 18:47 Permalink

Burn  it  Down,  it's  a  house  of  Straw,  Burn  it  down  spread  the  ash's,  and  build  it  again  with  bricks  of  gold  or  perish.

truthordare Mon, 01/22/2018 - 21:25 Permalink

Seriously, The writing for this shit was on the wall back in the mid 90's. Anyone who didnt see this coming and get the fuck out of the country and become a non contributer in all senses is a complete fuckin mug.

Aireannpure Mon, 01/22/2018 - 21:28 Permalink

Raise the contribution rate for the exsisting pension employees. Michigan will NOT do this, Illinoying same story. What are they waiting for? STOP raising my taxes! We are OVER taxed.