The fall in bond yields since the Brexit vote has nearly doubled the pensions deficit of the UK's largest listed companies. The combined accounting deficit of the FTSE 100 stood at £46bn at the end of July, compared with £25bn a year earlier: though this fall would have been greater but for pension funds' hedging strategies and the currency boost for their overseas assets.
This has prompted the usual questions over whether companies should pay more to make up their pension shortfalls, and less out to shareholders. The numbers don't bear this out yet. In 2015, six companies paid more to their pension schemes than they distributed in dividends, compared to seven in the previous year.
Of the 56 companies to disclose a deficit last year, 29 of these companies paid dividends more than double the size of the shortfall, with LCP suggesting "these companies could pay off their pension deficit relatively easily if they wanted to". The total contribution from FTSE 100 companies to their pension deficit did rise to £13.3bn in 2015, an increase on the £12.5bn paid in 2014.
This report comes at a time when companies’ dividend policies have come under increased scrutiny following the collapse of BHS. As a result, companies with substantial deficits may see “regulatory pressure on their dividend policy”, believes LCP.
Royal Bank of Scotland(RBS) has made a £4.2bn contribution to its pension scheme, the largest ever payment to a UK pension scheme, and more than doubling the £2bn plugged in by BT (BT.A) in 2012.
