Defined Benefit 

FTSE 350 dividends trump pensions 14 times

FTSE 350 dividends trump pensions 14 times

FTSE 350 companies who sponsor defined benefit schemes are paying on average 14 times more in dividends than in pension contributions, new data has shown.

The data was published in The Pensions Regulator's review of DB pension schemes with valuation dates between September 2018 and September 2019.

This analysed the ratio of deficit reduction contributions to dividends paid by employers in the FTSE350 - representing about 200 companies and 470 schemes.

According to the figures, the ratio – at 14.2 in 2018-19 – has been increasing steadily every year. In 2012, the median ratio stood at 9.2.

For companies outside FTSE 350, the discrepancy between pensions and dividends are much lower – at a 4.9 ratio in 2018-19, which compared with 3.7 in 2012.

The topic was brought to light after the collapse of contractor Carillion, which laid bare differences in companies' policies.

FTAdviser reported recently that intervention from TPR has forced an unnamed company to prioritise its pension scheme over dividends to its shareholders.

However, the Department for Work and Pensions has so far dismissed calls for dividend reporting, which would see the regulator alerted to companies which pay out large dividends.

Overall, TPR’s analysis showed that schemes undertaking valuations at March 31, 2019 will have marginally improved funding levels and deficits from those reported three years ago.

However, the deficits have not improved as much as would have been expected, and so it is likely that these schemes' recovery plans won’t be on track, the regulator stated.

If trustees want to keep the same end date to their current recovery plan, deficit reduction contributions will need to be increased, it added.

After the agreed top-ups to their pension schemes, only about 30 per cent of schemes remain on track to remove the deficit.

Some 50 per cent of these plan would need to increase contributions by up to 100 per cent, whilst the remaining 20 per cent would need to more than double their contributions to retain their current recovery plan end date, the report stated.

David Everett, partner at pensions consultancy LCP, noted TPR’s analysis "supports the contention that many DB scheme sponsors have the financial firepower" to increase contributions to their schemes.

He noted that this is likely to be necessary for many of them "as once again, good investment returns over a three-year period since the last valuation have been largely cancelled out by lower expected investment returns for the future leading to increased liabilities".

maria.espadinha@ft.com

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