Five FTSE 100 companies paid more in pension contributions than dividends to shareholders, as of 31 March 2018, as the tension between delivering shareholders value and funding schemes continues.
According to JLT’s FTSE 100 Disclosures Report October 2018, Tesco, GKN, International Airlines Group, Royal Mail and Royal Bank of Scotland committed to improving scheme funding over the past year, leading to the companies paying more into their pension schemes than dividends.
However, it is one less than the previous year, when six FTSE 100 companies’ pension contributions outweighed their dividend pay-outs, highlighting the gradual improvement in average funding levels.
JLT Employee Benefits chief actuary, Charles Cowling commented: “The inherent tension between funding pension obligations and paying dividends persists across the UK’s blue-chip index, but the tide is starting to turn among some sponsors. It is encouraging to see schemes acknowledging the balance sheet risks presented by unfunded pension obligations and taking action to shore up their position.”
In total, 37 FTSE 100 companies could have settled their pensions deficits in full, with a payment of up to one year’s dividend.
More than half (53) of FTSE 100 sponsors disclosed “significant deficit funding contributions” in their most recent reports and accounts as they continued to offset balance sheet risks with cash injections.
In total, £14.8bn was contributed into schemes during the year, down from £17.4bn in the previous year, and £6.6bn more than the cost of benefits accrued. This represented £8.2bn of funding towards reducing pension deficits.
As of 31 March 2018, the estimated deficit for FTSE 100 DB schemes declined by £2bn to £33bn year-on-year, while total liabilities fell by £13bn to £692bn.
Despite this, nine FTSE 100 companies had liabilities greater than their equity market value and four of those disclosed total liabilities almost double their market value.
During the year, 70 companies felt the benefit of an unexpected gain to their balance sheet, while 20 suffered an unexpected loss due to a shift in the actuarial position of their scheme.
Cowling concluded: “Looking ahead, balance sheet resilience could be crucial over the coming months as we approach the Brexit deadline. Corporate sponsors and schemes should think carefully about their risk exposures through a period of heightened political and potential market volatility. With expectations of muted growth into 2019, locking in gains and improving liability matching may help sustain funding positions through times of uncertainty.”