DB scheme dividend payments 5x higher than contributions

Companies with defined benefit pensions are paying out nearly five times more in dividends than in DB scheme contributions, research from the University of Bath has shown.

Speaking at the Westminster Business forum, University of Bath professor of finance and director of the centre for governance, regulation and industrial strategy, Ania Zalewska, said: “If you take the ratio of dividends compared to what was paid in DB contributions, it was nearly five times.

“Five times more was paid to shareholders than into DB schemes.”

Zalewska’s research, which looked at dividend payments to shareholders, DB contributions and direct recovery contributions for deficits, consisted of 200 companies in the FTSE 250 between 2012 and 2015/16.

When looking at the schemes that were in deficit both in 2012 and 2015/16, Zalewska found that the pattern remained the same.

“When it comes to proportions, it doesn’t change,” she continued. “Those companies that still had a deficit at the end of the period paid even slightly more in dividends, in comparison with the regular contributions, than the other sample.”

The research showed that schemes that were in deficit throughout the sample period did not reduce their dividend payments and, overall, did not reduce their deficit.

Zalewska added: “What is also striking, the cumulative deficit of the start of the sample was slightly smaller than at the end.

“In those companies, the deficit was still increasing, and a lot was going to shareholders.”

The Pensions Regulator executive director of regulatory policy, analysis and advice, David Fairs, added that the regulator was also concerned about the level of dividends payments.

He stated: “We have concerns in that area. Where we have those issues, we write to schemes in the case of deficit contributions not being high relative to dividends.

“We wrote to about 50 schemes and asked them to explain the issues that they encountered to try and change their behaviour.”

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