Large French companies with UK defined benefit (DB) pension liabilities are finding these schemes a disproportionate drag on overall profitability compared to pension costs in their other operations, according to a new study.
Data compiled by UK consultancy Barnett Waddingham showed that, although UK subsidiaries on average produced only 5% of global revenue for French companies, they accounted for 32% of global DB liabilities and 31% of total contributions.
Andrew Vaughan, partner at Barnett Waddingham, said: “The costs and risks associated with DB pension schemes are well known within the industry.”
In most cases, he said, the parent companies in the survey were leading players in their industries and able to absorb reasonably substantial pension costs.
“However, the impact upon performance and return on investments of the UK subsidiary companies can be more pronounced,” he said.
The analysis of DB schemes covered 27 French companies with around £45.7bn (€52.3bn) of UK pension liabilities between them, and a combined deficit of £3.3bn. Most were constituents of the CAC40 stock index.
The report revealed a similar picture to a survey of Spanish and Italian companies with UK subsidiaries, which Barnett Waddingham published in January.
However, for the Spanish and Italian parent companies, the UK subsidiaries on average produced 15% of their companies’ global revenue, while their DB schemes accounted for an average 60% of the parent companies’ global DB liabilities.
“In both France and southern Europe, UK subsidiaries on average only produce a small proportion of the global revenue, but they account for a much larger proportion of the global DB liabilities and contributions,” the consultancy said. “This suggests that in both regions, UK pensions may have a disproportionately large effect on the performance of the global company.”