The research found that 23 FTSE 250 companies would need a payment of more than two years’ dividends in order to settle their defined benefit (DB) pension deficits in full, which is worth £4.7bn collectively. Meanwhile 12 companies would need a payment of up to two years’ dividends to settle their pension deficits in full and 56 companies could have settled their pension deficits in full with a payment of up to one year’s dividend.
Another measure of financial risk posed by DB pension liabilities is its size relative to the company’s equity market value. Twenty FTSE 250 companies have total disclosed pension liabilities greater than their equity market value. For The Go-Ahead Group, total disclosed pension liabilities are more than four times their equity market value.
Charles Cowling, Director, JLT Employee Benefits, comments: “While these metrics don’t capture the entire picture, they are a useful indicator of the pension drag on the sponsoring company. High levels of debts can 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. As Brexit has increased the uncertainty around trade regulations and tariffs, being highly competitive is a key success factor.
“Shareholders are increasingly aware of the potential disruption that a massive pension scheme can cause to a business and it should be expected that it will weigh the share price down.
“While 9% may not seem a lot, 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.”
“To deal with this, companies should firstly take every opportunity to stop these deficits and liabilities getting larger, and secondarily they should put a plan in place in reduce the size of their pension scheme.”
As at 30 June 2016 the total deficit in FTSE 250 pension schemes is estimated to be £11 billion. Only 41 companies disclosed a pension surplus in their most recent annual report and accounts; 91 companies disclosed pension deficits.
In the last 12 months, the total disclosed pension liabilities of the FTSE 250 companies have remained approximately at £81 billion. A total of 26 companies have disclosed pension liabilities of more than £1 billion, the largest of which is FirstGroup with disclosed pension liabilities of £4.05 billion. A total of 156 companies have disclosed pension liabilities of less than £100 million, of which 118 companies have no defined benefit pension liabilities.
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