By Daniel Hunter
The total amount of pension deficit contributions paid by companies in the FTSE350 as a percentage of the total dividend paid is at its lowest percentage in six years according to research conducted by pension consultants Barnett Waddingham.
The firm’s 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% of total dividend paid in 2014 which is a decrease from 17% in 2013 and a considerable fall from 27% in both 2010 and 2011.
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”.