UK – Nearly two dozen FTSE 350 companies have been forced to spend more on reducing their pension deficits than on dividend payments, research by Barnett Waddingham has shown.
The consultancy noted that IAS19 deficits across the companies had not fallen noticeably over 2009 and, at £64.9bn (€79.3bn) in 2012, were only £4.1bn lower than three years prior.
The survey also found that the listed companies paid, on average, £4,000 per employee in deficit-reduction payments compared with £2,600 per employee in pension contributions.
Nick Griggs, head of corporate consulting at Barnett Waddingham, said: “As businesses plan for the future, it is often the uncertainty around future contribution requirements to DB pension plans that is as much a problem as the absolute amount that is currently being paid.
“This is highlighted by the persistence of large IAS19 deficits despite significant contribution payments and the resistance employers will face from scheme trustees should they want to reduce contributions if cashflow worsens.”
According to the consultancy, 23 companies were paying more in deficit contributions than dividends.
Griggs added that uncertainty surrounding the end of quantitative easing meant deficits would remain “as unpredictable as ever” over the short term.
But he welcomed new Bank of England governor Mark Carney’s intention to offer more guidance on future interest rate levels.
“All other things being equal, it would only take around a 1 percentage point rise in bond yields to eliminate the aggregate FTSE 350 IAS19 deficit,” he said.
Barnett Waddingham’s findings over the levels of deficit-reduction payments against dividend payments roughly mirrored a report released by the Pensions Regulator last year, which found that a small number of FTSE 350 companies were seeing deficit contributions account for more than half of dividends.
Griggs said he hoped the new statutory objective for the regulator – requiring it to explicitly take account of the sponsor’s solvency – would reduce the impact of deficits on employer growth.
“Our research emphasises the considerable volumes of cash DB scheme deficits are consuming and the knock-on impact this must be having on investor returns and companies’ growth plans,” he said.