One in 10 DB pension sponsors in FTSE issue three profit warnings in 2020

One in 10 (10 per cent) listed defined benefit (DB) pension scheme sponsoring employers issued three profit warnings in 2020, according to figures from EY.

EY warned that the number of FTSE companies issuing multiple profit warnings in a 12-month period could indicate an increase in insolvencies was likely.

According to EY, typically one in five companies that issue three warnings within 12 months will enter administration the following year.

A total of 27 listed firms with DB schemes issuing three warnings last year, including 15 companies in the FTSE 350.

Its analysis also revealed nearly two-thirds (62 per cent) of DB sponsors had issued at least one profit warning in 2020, with 22 issued in Q4.

Of the 249 profit warnings issued by DB sponsors in 2020, representing 43 per cent of the total 583 profit warnings during the period, 90 per cent were Covid-19 related.

Of the 1,198 UK-registered listed companies, 23 per cent (280) have a DB scheme, and EY warned that most are concentrated in “more traditional industries that are particularly vulnerable to the economic impact of the pandemic”.

Over a third (35 per cent) of all listed companies warned in the first three quarters of 2020, compared to 62 per cent of the total of listed companies that have a pension scheme.

“The market pressures of 2020 were no small feat to overcome, and given how 2021 has started, the outlook isn’t likely to improve in the short term,” commented EY UK actuarial leader, Gareth Mee.

“All businesses have been challenged by the pandemic, but those with DB pension obligations sit disproportionately in the sectors which are struggling most.

“Corporates and trustees alike are working hard to maintain business as usual, while ensuring pension obligations to members are fulfilled.

“But with volatility persisting, and the pressures across many schemes’ investment portfolios increasing, the outlook is concerning, making the case for an urgent relook at pension scheme de-risking and strategic planning for an increasingly uncertain future.”

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