More than £100bn of DB pension liabilities are in UK subsidiaries of the top listed European companies, according to Barnett Waddingham.

This number is likely to account for over 500,000 pension scheme members, while the size of UK DB liabilities in European companies is likely to be two to three times bigger.

The top listed European businesses have reported that they spend over 14 per cent of their total staff costs on UK final salary schemes – double the proportion that the FTSE 350 spends.

The drop in the sterling, which is approximately 8 per cent against European currency since the referendum means that for these European companies, liabilities will be the equivalent of £8bn cheaper, which should encourage them to plug deficits while they can. However, the continually falling interest rates of over 1 per cent p.a. is likely to have a greater effect, causing liabilities to rocket by over £20bn.

Barnett Waddingham has warned, that over the long term, an eventual Brexit could lead to legal complications between the UK and the rest of Europe. If a UK subsidiary of a European company was to face collapse, it may cause greater difficulty for The Pensions Regulator and trustees to retrieve the pension debt from the parent company.

Barnett Waddingham associate Liam Mayne said: “It is apparent that the burden of DB pension liabilities not only impacts UK companies, but also play a significant role in the financials of European companies with UK subsidiaries.

“Companies that have assets which match the movement of interest rates – an increasingly common feature of final salary scheme investment strategies – could be well-placed to benefit from the fall in sterling and, much like European tourists, now could be the time to take advantage of cheap sterling to plug the gap in these schemes or consider the cost of a risk-reducing insurance transaction. Indeed we have already seen cases progress where a potential insurance transaction has become more affordable to an overseas parent company.

“The magnitude of these figures brings to light the important part European parent companies play in supporting their former UK employees in their retirement. It is vital that this is taken in to consideration by the industry as and when Brexit starts to take shape. In the short term, they may well see increased demand from their UK trustees to take risk-reducing actions now.”

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