Nearly 10% of the UK’s listed mid-cap companies would need to pay the equivalent of more than two years’ worth of dividends into their pension schemes to plug funding shortfalls, according to consultancy JLT Employee Benefits.
The group found that 23 companies listed on the FTSE 250 index would need to pay £4.7bn (€5.5bn) collectively to close deficits. In addition, 20 constituents of the index have pension fund liabilities greater than their market capitalisation.
Charles Cowling, director at JLT Employee Benefits, said such debts could “severely constrain a company’s ability to invest in vital research and development, upgrade its operations, and hire skilled staff, affecting its competitiveness and long term prospects”.
FTSE 250 companies are typically more domestically focused than those listed on the FTSE 100 index, meaning mid-cap companies are more exposed to economic risks from the UK’s exit from the European Union.
Cowling said: “As Brexit has increased the uncertainty around trade regulations and tariffs, being highly competitive is a key success factor.”
He added that “the situation in the FTSE 250 is much more serious than in the FTSE 100 which has only a couple of companies with such a pension burden”.
JLT estimated the total deficit across all FTSE 250 company pension schemes at £11bn as of 30 June 2016. Nearly half of companies – 118 – do not have a defined benefit (DB) pension scheme.
Former BHS owner under fire (again)
UK MPs have accused Sir Philip Green, whose Arcadia Group is the former owner of BHS, of favouring Arcadia’s pension scheme with better funding and higher contributions.
The Work and Pensions Committee, a group of MPs from the UK’s lower house, published examples of letters sent to members of the Arcadia Group Pension Scheme and the Arcadia Group Senior Executives Pension Scheme, detailing the results of the two funds’ 2016 actuarial valuation.
The figures revealed a combined deficit of £564.6m across both schemes, meaning they were 56% funded on average. However, the letters also showed that Arcadia was to contribute £50m a year to help plug the gap from September 2016 until August 2019. It would then increase deficit payments to £54.5m a year.
Frank Field, chair of the committee, said in a statement that the Arcadia plan was “credible”, but claimed that it was “clear from these figures that Sir Philip was long favouring the Arcadia schemes over their BHS counterparts, which have more members.”
The 10-year Arcadia plan compares to a 23-year plan that was in place for the BHS Pension Scheme, before the sponsoring employer went bankrupt. This plan included annual deficit payments of £10m. A 2014 valuation of the scheme showed it to be 65% funded with a deficit of £207.6m.
BMW workers to strike over pension fund closure
Some of BMW’s UK employees could go on strike over plans to shut the company’s DB pension scheme.
Workers’ union Unite said 97% of roughly 1,400 employees backed industrial action over the changes, which will see the DB scheme close on 31 May this year.
Union representatives were set to meet this week to discuss what form industrial action would take.
Unite said it had “urged BMW to reflect on the results” of the ballot and “enter meaningful talks over affordable options to keep the pension scheme open”.
Len McCluskey, general secretary of Unite, said: “Unite members have been the driving force behind record sales and a surge in profits. Repaying their loyalty by breaking pension promises and robbing them of tens of thousands of pounds of retirement income is a disgraceful way for BMW bosses to behave.”