Pensions - Articles - Tensions between funding deficits and dividends increases

 As at 31 January 2018, JLT estimates the total DB pension scheme funding position as follows:

 Charles Cowling, Director, JLT Employee Benefits, comments: “Markets have seemingly been reasonably benign for pension schemes this month, as overall reported pension deficits continue to drift downwards. However, this masks frantic activity within a few companies with large pension schemes. For many companies the pension deficit calculated by the pension scheme trustees and used for calculating the cash funding required to be paid by the employer, is significantly greater than the pension deficit reported in the employer’s accounts.

 “Moreover, actuarial valuations being carried out currently are likely to show a need for significant increases in cash funding. This comes at a time when the tension between funding pension deficits and paying dividends to shareholders has spilled over in recent weeks, with the positions at Carillion and Capita grabbing headlines and column inches.

 “The harsh lesson for shareholders may be that there are many companies with large pension schemes which are now going to come under increased pressure to prioritise the financing of pension deficits over returns to shareholders. This can only mean that we are likely to see more companies following the Capita example with share prices suffering as a result.”