The liquidation of Carillion should “trigger alarm bells” for pension savers, warns the chief executive of wealth manager deVere.

Carillion, one of the UK’s largest construction companies with major UK government public sector contracts and employer of 20,000 people in the UK, announced today that it had “no choice but to take steps to enter into liquidation with immediate effect.”

Nigel Green, founder and chief executive of the deVere Group said: “The UK woke up to the news this morning of Carillion being forced into compulsory liquidation.  This should trigger alarm bells for pension savers across the UK as it puts a huge question mark over the fate of yet another major pension fund.

“The government’s pensions lifeboat, the Pension Protection Fund (PPF), is now to take over payment of pensions for the company’s retirement scheme members.  It can be reasonably expected that those members who are not yet drawing their Carillion pension could now experience a drop of at least 10 per cent to their retirement income.

“Whilst the PPF is an important and valuable support, UK final-salary pension schemes have an enormous deficit blackhole, which raises the inevitable question, ‘how many more big hits can the PPF take?’”

Mr Green added: “This deeply depressing, and now all-too-frequent, turn of events should be a wake-up call to pension savers.

“The fact of the matter is that despite rising stock markets and a positive global economic outlook, companies – including some of the biggest brands and household names – are severely struggling to fund their pension funds for a variety of reasons.

“These include, amongst other factors, falling gilt yields, which have driven up transfer values.  This is good news for those wishing to take money out of the defined benefit scheme, but these larger pay-outs put further pressure on the pension schemes themselves – many of which are already critically underfunded.

The deVere Group has 70 offices across the world, over 80,000 clients and £8.8bn under advice. DeVere launched its own private bank after it acquired Arton Bank.

Tom McPhail, head of pensions research at Hargreaves Lansdown said: “Carillion pension scheme members will be understandably be worried today at the news of the company going into administration. The Carillion scheme has a deficit of £580 million, meaning there isn’t currently enough money in the scheme to meet the promised pension pay outs.

"It is highly likely the scheme will now be taken on by the Pension Protection Fund. This would ultimately mean the PPF taking over the assets of the scheme, and responsibility for paying out members’ pensions. The PPF has a surplus of over £6 billion and so should not have any difficulty in meeting the shortfall in the Carillion scheme.”

Whilst the PPF provides valuable security, members who have not yet reached retirement should be prepared for a cut to their pension pay outs. This will involve an immediate cut of 10%, plus the possible loss of some inflation proofing; higher earners may be affected by the PPF cap on payouts which currently stands at £34,655.05. An upward adjustment to the cap applies to those members with 20 or more years’ service. Members who have already reached normal retirement age should continue to enjoy 100% of their current pension payments."

Mr McPhail added: "The PPF was established for precisely this kind of situation. It is a well-run scheme with a healthy surplus and a well-established system of funding based on levies on other pension schemes.

“Assuming the PPF does take on the Carillion scheme, the assessment process could take months or even years. In the meantime, the Carillion scheme administrators, the liquidators and the PPF can be expected to work together to ensure continuity of payouts for scheme members.”