UK defined benefit (DB) schemes linked to some Spanish and Italian companies descended into deficit in 2016, according to a survey from consultancy Barnett Waddingham, as a result of the fall in corporate bond yields.
The firm warned of the disproportionately large effect the development could have on the returns on investment of these UK subsidiaries for their shareholders.
Even though the UK subsidiaries in the survey on average produced just 15% of their companies’ global revenue, the units accounted for an average 60% of the parent companies’ global DB liabilities and 64% of their global pension contributions.
Data collected at the end of 2016 from companies listed on the Spanish IBEX and Italian FTSE MIB indices with British subsidiary companies sponsoring DB schemes showed that 12 companies had around £47.6bn (€53.9bn) of UK pension liabilities between them.
These DB schemes had a combined deficit of £1.4bn, compared to a pension surplus of just over £620m for the same companies the previous year, Barnett Waddingham said in its survey “Exploring Southern Europe”.
On average, the companies contributed £11,800 per employee to their UK pension schemes, compared with £3,800 per employee outside of the UK.
The firm said this significant difference was largely due to the fall in the corporate bond yields over the period.
Most of the parent companies included in the survey were leading companies within their sector and could absorb reasonably large pension costs, said Andrew Vaughan, partner at Barnett Waddingham.
“However, the impact upon performance and return on investments of the UK subsidiary companies can be more pronounced,” he said.
“Multinational companies should continue to focus their attention on pensions costs both at a global level and country level and consider taking action to address any imbalance that exists wherever possible,” Vaughan added.