The annual ‘Impact of pension schemes on UK business’ FTSE350 research found that the total amount contributed towards paying down defined benefit (DB) pension deficits was 13 per cent of total dividend paid in 2014 which is a decrease from 17 per cent in 2013 and a considerable fall from 27 per cent in both 2010 and 2011.
In the Barnet Waddington report, it states that the presence of a DB deficit effects shareholders, as there is evidence that certain events related to DB schemes can have a negative impact on a company’s share price.
In theory, companies with pension deficits face a trade-off and must choose to either pay higher contributions to reduce deficits or make investments and pay dividends.
Commenting on the findings, Nick Griggs, Head of Corporate Consulting at Barnett Waddingham, says: “This drop will be welcome news for investors. The presence of a DB deficit is an interesting issue for shareholders and there is evidence that certain events related to DB schemes can have a negative impact on a company’s share price.
“In theory, companies with pension deficits face a trade-off and must choose to either pay higher contributions to reduce deficits or make investments and pay dividends.
“Over the last 6 years the total dividends paid by FTSE350 companies which sponsor DB schemes was around £300bn. Over the same period cash paid into DB schemes to reduce funding deficits equalled approximately £64bn. Clearly, DB deficit contributions are not only of a sufficient scale to materially impact on potential investment opportunities but also to reduce the visible rewards to equity investors and increase the cost of equity”.
The report summarises the data collected from over 200 companies within the FTSE350 that sponsor DB pension arrangements. Separate analyses have been carried out for FTSE250 companies as well as companies within different industry sectors.
