£560m pension deficit cripples contract firms

Fears black hole will swamp industry

BRITAIN’ S biggest contractors have a combined £562m black hole in their pension schemes – putting workers’ nest eggs at risk as fears grow for the industry.

The funding gap means that if any outsourcers with a pension deficit go bust, the retirement benefits of their workers will be in jeopardy.

It will force them to pump millions of pounds into the schemes to close the gaps at a time when it is harder than ever to make money.

There is speculation over the future of government contractors after Carillion failed this year, with fears mounting that rival Interserve could be the next to fold.

Mail analysis reveals that Britain’s five major listed contractors – Interserve, G4S, Serco, Mitie Group and Capita – have a combined shortfall of more than half a billion pounds. At last count Mitie Group had a defined benefit pension scheme deficit of £47.5m, while Capita and G4S had deficits of £185m and £382m respectively.

Serco’s pension scheme has a surplus of £20m, while Interserve’s scheme had a surplus of £32.1m at the end of June, up from a deficit of £48m at the end of 2017 due to a change in how future pension increases are calculated. In all, the five firms have a deficit of £562.4m.

Mitie is paying £58m into its pension scheme up to 2027 to plug the gap, while Capita will hand over £176m by 2021. Only 7pc of G4S’s business in the UK and Australia is generated from government contracts. It was due to pay £41m into its pension scheme this year.

The spotlight has returned to the industry since Interserve lost more than half its value on Monday after it announced plans for a major refinancing to tackle its crippling debt pile of more than £600m.

Interserve pension scheme trustees and bosses are in crunch talks with The Pensions Regulator.

Unions warned Interserve was at risk of becoming ‘Carillion mark two’ and could follow the same path as its rival, which fell into administration with £7bn of debts.

Frank Field, chairman of the House of Commons Work and Pensions Select Committee, said: ‘Carillion was only the latest signal that we do not have a system of regulaby tors capable of protecting ordinary workers, pension savers, or small business suppliers.

‘If the Government wants to continue to play this highstakes game of finding partners to provide public services, it must steeply upgrade our system of corporate governance so they actually serve the public.’

Thinktank Institute for Government’s figures this week suggest the state spends £284bn a year on goods and services from external suppliers. Data group Tussell found Interserve won contracts worth £938m in 2017.