Dutch companies with subsidiaries in the UK pay a significantly higher contribution to their UK DB pension funds than their FTSE350 counterparts on average, according to a survey by UK consultancy Barnett Waddingham.
Surveying the 2016 figures of 12 anonymised companies, with combined UK pension liabilities of almost ₤49bn (€55bn), it found that pension contributions amounted to at least 1.6% of total revenue on average. This compared to a minimum 0.7% from the FTSE350 companies.
Including the two highest contributors, the overall contribution was 13.5% on average, it said.
Dutch-sponsored schemes had a funding level of 95% on average, Barnett Waddingham reported, 1 percentage point higher than the FTSE 350 average.
It added that four subsidary schemes had a funding surplus, while funding of the least funded scheme stood at 67%.
According to Barnett Waddingham, funding had dropped by 2 percentage points on average in 2016, and at some schemes it had decreased by as much as 6-9%.
“This is likely to be caused by a significant fall in bond yields, resulting in lower discount rates and higher liabilities,” it said, noting that the average discount rate fell from 3.8% to 2.6% during 2016.
The company suggested that some employers and parent companies would struggle to meet contribution requirements over the longer term without making changes to their funding strategy.
Schemes could instead use of formal guarantees to improve covenant and enable a lower assessment of accrued benefits, Barnett Waddingham suggested, or asset-backed contributions to bolster the value of assets without immediate cash injections.
It added that a more simple approach would be extending the recovery plan in order to reduce the annual contribution requirements. However, UK companies have been criticised in recent months by politicians for longer than average recovery periods.
The consultancy also found that the 12 UK subsidiaries on average produced 7% of their parent companies’ global revenue, while accounting for 44% of their global DB liabilities and 33% of their global contributions.
All but one of the companies’ UK pension funds were closed to new entrants, which compared to 86% of all UK schemes.
Barnett Waddingham also noted that four companies with at least a stable funding level disclosed liability-matching investment strategies, and suggested this policy had helped to mitigate the effects of the large discount rate fall during 2016.