Nearly two thirds (63 per cent) of the profit warnings issued by UK-listed companies with a defined benefit (DB) pension scheme so far in Q2 have cited the direct or indirect impact of tariffs and resulting recent market disruption, EY-Parthenon’s latest report has revealed.

Whilst previous industry research suggested that those in DB schemes are unlikely to be affected by the recent tariff-induced market volatility, EY's research showed that the tariffs are impacting DB scheme sponsors.

Indeed, the research showed that while UK-listed firms with DB sponsors issued 18 profit warnings in the first quarter of the year, equalling the number issued in Q1 2024, of the eight issued so far in Q2, five cited the direct or indirect impact of tariffs.

In addition to this, EY found that profit warnings from UK-listed firms with DB sponsors accounted for almost a third (29 per cent) of the 62 warnings from all UK-listed businesses in Q1

A third (33 per cent) of warnings from UK-listed companies with a DB pension scheme during the first quarter cited contract and order cancellations or delays – the highest percentage for this cause in two years.

Geopolitical turbulence and rising costs were also key factors behind warnings, cited by 22 per cent and 17 per cent of respondents, respectively.

EY-Parthenon partner and UK pensions covenant advisory leader, Karina Brookes, said that these findings align with the discussions that are currently being had with sponsors across a range of sectors.

"Even businesses that are less directly impacted by tariffs are facing disruption caused by indirect impacts such as the knock-on effect on supply chain and wider economic uncertainty," she explained.

Given this, she suggested that DB scheme trustees should continue to engage with sponsors to fully understand the different scenarios they are considering and any impact on core business operations, including supply chain shifts.

"As geopolitical uncertainty continues, businesses might look to engage with schemes to access surpluses in line with new proposed government policy," she continued.

Adding to this, EY UK pensions consulting leader, Paul Kitson, said: “Ongoing geopolitical and economic uncertainty is challenging the pensions sector, and both trustees and sponsors are working hard to ensure they are meeting the diverse needs of pension scheme members, employees, and corporate sponsors through turbulent times.

"Confirmation that DB pension scheme surplus release will be included in the upcoming Pension Schemes Bill presents a positive opportunity to enhance covenant, but ongoing market volatility means the terms and structure of any surplus release will need to be carefully managed to ensure there is no inadvertent reduction to value.

“To navigate this, trustees and sponsors will need to develop a clear framework that balances the diverse needs of these stakeholder groups, and to undertake an objective assessment of the employer position before and after surplus release to ensure positive outcomes are delivered for all.”

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