Almost one in 10 companies trading in the FTSE 250 carry a worrying amount of pension debt, according to JLT Employee Benefits.
The pension and employee benefit consultancy discovered that 23 companies in the index, or 9%, needed to pay £4.7bn collectively to clear the deficit in their defined benefit (DB) schemes. This equates to more than twice their annual dividends.
Meanwhile, 12 companies need to make a payment of up to two years’ dividends to clear their deficit in full, while 56 sponsoring companies could settle their pension deficits if they axe their dividend for a year.
The research makes bad reading for some companies. The disclosed pension liabilities of 20 FTSE 250 companies’ are greater than their market cap. Go-Ahead stands out here with total disclosed pension liabilities of more than four times the value of its equity.
JLT Employee Benefits director Charles Cowling said although these figures do not capture the entire picture, they are a useful indicator of the pension drag on sponsoring companies.
A pension deficit is a debt which, if high enough, could affect a company’s competitive position by restricting investment in research and development, upgrading its operations and recruiting new staff. “As Brexit has increased the uncertainty around trade regulations and tariffs, being highly competitive is a key success factor,” Cowling added.
“While 9% may not seem a lot, the situation in the FTSE 250 is much more serious than in the FTSE 100 which has only a couple of companies with such a pension burden.
“To deal with this, companies should firstly take every opportunity to stop these deficits and liabilities getting larger, and secondarily they should put a plan in place to reduce the size of their pension scheme,” Cowling said.
At 30 June 2016 the total deficit of FTSE 250 pension schemes was estimated at £11bn. Only 41 companies disclosed a pension surplus in their most recent annual report, while 91 schemes admitted that they were in the red.
In the last 12 months, the total disclosed pension liabilities of FTSE 250 companies have remained around at £81bn. A total of 26 companies have disclosed pension liabilities of more than £1bn, the largest of which is FirstGroup at £4.05bn.
A total of 156 companies have disclosed pension liabilities at lower than £100m, of which 118 have no defined benefit pension liabilities.
