A growing share of UK-listed companies with defined benefit (DB) pension funds are flagging policy change and geopolitical uncertainty as material threats to earnings, underscoring renewed pressure on sponsor covenant strength as trustees and advisers navigate a volatile backdrop.
According to the latest Profit Warnings analysis from EY-Parthenon, 42% of profit warnings issued by UK companies in 2025 cited the impact of policy shifts or geopolitical uncertainty – the highest proportion recorded in more than 25 years of the consultancy’s data.
Across all UK-listed firms, 240 profit warnings were issued in 2025, down from 274 in 2024, but still at elevated levels compared with pre-pandemic norms.
Of these, UK-listed companies that sponsor DB schemes accounted for 63 profit warnings during 2025, representing around a quarter (26%) of the total. That proportion means roughly one in four DB sponsors has warned investors about earnings shortfalls over the past year.
For trustees and covenant advisers, the trend is significant. Profit warnings often presage covenant weakening, particularly where underlying causes reflect external pressures rather than idiosyncratic company missteps.
In 2025, the prominence of policy and geopolitical drivers – whether regulatory change, shifting trade barriers, or global instability – suggests sponsors are grappling with risks that are harder to predict or hedge against, according to EY-Parthenon.
Other leading factors behind warnings from DB sponsor firms included contract and order cancellations or delays, cited in nearly a third of cases, signalling demand disruption as another source of strain.
Karina Brookes, UK pensions covenant advisory leader at EY-Parthenon, said while the absolute number of warnings eased in 2025, “this feels more like an uneasy pause than a turning point”, with policy and geopolitical uncertainty continuing to shape sponsors’ financial outlooks.
Transparent sponsor–trustee communication is vital, she added, to balance member protection with corporate priorities in an unpredictable environment.
For pension funds contemplating surplus extraction under forthcoming legislative changes, the backdrop is mixed.
Stronger funding metrics across some pension funds provide a degree of comfort, but the record-high attribution of warnings to external uncertainty reinforces the need to stress-test covenant assumptions in strategic funding and investment planning.
