Britain’s biggest companies paid their shareholders five times more than they spent on pension contributions last year, a new report shows.
In 2015, FTSE 100 companies paid £71 billion in payments to shareholders, according to a survey by Lane Clark & Peacock (LCP), a pensions expert. This compares to only £13.3 billion paid towards their defined benefit pension schemes, which offer a guaranteed income in retirement.
The combined pension deficit of the 56 companies in the blue chip FTSE 100 index that disclosed a deficit at their 2015 year-end was £42.3 billion, LCP estimated.
Those same companies paid £53 billion to shareholders last year.
The announcement comes at a time of heated debate over dividend payout.
BHS’s pensions scheme had a £571 million hole when the high street retailer collapsed. This figure has now increased to around £700 million due to unfavourable market movements, leaving 22,000 members facing cuts to their retirement income.
The British Steel pension scheme, backed by Tata, also has an estimated deficit of £700 million which has complicated the quest to find a new owner for Tata’s factories.
“The collapse of BHS and the potential sale of Tata Steel UK, both with underfunded pension schemes, have highlighted the significance of pension liabilities and the impact that a large defined benefit scheme can have on a UK company,” Bob Scott, LCP’s senior partner and author of the report, said.
“Companies with large deficits may see pressure from the Pensions Regulator on their dividend policy in light of the Select Committee’s report into BHS,” he added.
BT is the FTSE 100 company with the biggest pension deficit at £7.6 billion, the report found. It is followed by Tesco and BAE Systems with pension deficits of £4.8 and £4.5 billion respectively.
Record low bond yields pushed the liabilities of UK pension schemes up to an all-time high £2.3 trillion on 1 July, increasing the yawning deficit to a record £935 billion, including a £115 billion hit from the EU referendum result, according to Hymans Robertson, an independent pension’s consultancy, making it responsible for £115 billion of debt.
“The gyrations in UK pension deficits are eye-watering. But one of the biggest factors that will determine whether or not pensions are paid to scheme members in full will be the health of the sponsoring company post Brexit,” Patrick Bloomfield, partner at Hymans Robertson, said.
Ros Altman, the former pensions minister, warned pensions could be under threat from the economic turmoil following UK’s vote to leave the EU.
“Good pensions depend on a good economy. Markets don’t like uncertainty, and we are clearly in unchartered territory,” Altmann said at an event in London.
The companies with the biggest pensions deficit:
BT Group : £7.6 billion
Tesco: £4.8 billion
BAE Systems: £4.5 billion
BP: £4.2 billion
Royal Dutch Shell: £2.9 billion
