Defined Benefit  

Company dividend payments dwarf pensions

Company dividend payments dwarf pensions

Some 115 companies are paying, on average, six times more in dividends than in pension contributions to their final salary plans, new research has found. 

Hymans Robertson yesterday (December 4) published its FTSE 350 pensions analysis for 2018, which showed there were 115 companies with a defined benefit (DB) pensions deficit, according to IAS19 standards.

Of this group, 46 companies have longer implied recovery plans, and low pension contributions relative to dividend levels, the consultant stated.

On average, it takes these companies eight years to pay off this shortfall, it added.

Hymans Robertson warned this meant they were in danger of triggering regulatory intervention unless pension contributions significantly increase at the next valuation.

FTAdviser reported on Monday (December 3) that intervention from TPR has lead to Southern Water agreeing to pay an additional £50m into its DB pension fund over a shorter period of time.

Alistair Russell-Smith, head of corporate DB at Hymans Robertson, warned The Pensions Regulator had been taking an increasingly hard stance in the wake of recent corporate failures. 

He said: "This invigorated regulator is likely to put greater pressure on companies to fix the roof whilst the sun shines.

"Recognising this tougher approach and focus on deficit contributions and dividend payments, a minority of companies should plan for regulatory intervention at their next triennial valuation unless they pay more into their schemes."

However, Hymans Robertson’s research also showed a rosier picture for 44 percent of FTSE 350 companies, whose DB pension schemes are now in surplus.

Some 90 per cent of the companies could pay off their deficit with less than six months’ earnings, it stated.

As the trend of scheme consolidation gathers pace – with the government expected to publish a consultation paper on this matter soon - the report also found that a considerable number of companies would be able to move to a commercial consolidator right-away or take advantage of strong pricing in the risk transfer market.

About 12 per cent of the FTSE 350 are already sufficiently well-funded that they could buy out today without any cash injection, it stated.

A further 9 per cent could transfer their pension scheme into a commercial consolidator, achieving a clean break for the employer, with a cash top-up of less than one month’s earnings, the consultant added.