FTSE 100 Companies Paying More Towards Their Pension Funds

Most of Britain’s large companies have paid their shareholders five times more than what they pay towards their employees’ pension funds. Lane Clark & Peacock (LCP), a pension’s expert carried out a study which highlights the fact that in 2015, FTSE 100 companies paid £71 billion in payments to shareholders while paying only £13.3 billion towards pension schemes.

The report has been released even as the issue of dividend payouts is being debated intensely in the country. Based on data collected from 56 companies who were in the FTSE 100, the total pension deficit stood at £42.3 billion in 2015. In the same period these companies paid around £53 billion to shareholders.

BHS, the high-end retailer that collapsed last year showed a gap of a £571 million in its pension scheme. This has now risen to a £700 million due to market movements and will result in 22,000 members seeing a reduction in their pension income. Similarly, the pension scheme of British Steel run by Tata has an estimated deficit of £700 million affecting the search for a new buyer.

In a statement, Bob Scott, LCP’s senior partner and author of the report said

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.

He added that the companies might see pressure from the Pensions Regulator on their dividend plan as a result of the report by the Select Committee into BHS’ collapse. The report states that with £7.6 billion, BT is the number one FTSE 100 company with the highest deficit. Tesco and BAE Systems come in second and third place with deficits of £4.8 billion and £4.5 billion respectively followed by BP at £4.2 billion and Royal Dutch Shell at £2.9 billion.

With bond yields hitting record lows, the liabilities of UK pension schemes are at currently around £2.3 trillion, making the deficit £935 billion the highest ever according to a report by Hymans Robertson, an independent pensions consultancy.

Patrick Bloomfield who is a partner at Hymans Robertson said that the biggest factor that will decide whether companies will be paying their employees’ pension in full depends on their performance post Brexit. Ros Altman, the former pensions minister has warned that the economic turmoil likely to result from Britain exiting the EU could significantly affect overall pensions.

---