Over half of FTSE 100 schemes could buyout in a decade

Over half (55 per cent) of FTSE 100 companies with a defined benefit pension scheme will be able to buyout within the next decade, research by Barnett Waddingham has found.

Furthermore, one in five companies will be in a position to buyout in the next five years, despite falling deficit contributions and increasing shareholder payouts.

According to the consultancy, diverting 7 per cent of shareholder dividends to pension contributions would mean 30 per cent of FTSE 100 schemes would be in a buyout position within the next five years and 70 per cent over the next decade.

Barnett Waddingham head of corporate consulting, Nick Griggs, said: “Getting to grips with pension liabilities has been a key challenge for the FTSE 100 since the financial crisis. Thankfully, the total pension deficit has been slowly shrinking on the back of recovering asset prices and the contributions paid by companies.

“The DB endgame is increasingly a realistic short-term focus for many companies and the dividend versus deficit contribution balance is a key lever for those nearing the end of their journey.”

Post-tax profits of the FTSE 100 with a DB scheme totalled £134bn in 2018, up from £57bn in 2009, while companies have paid £82bn into their pension schemes over the last decade, compared to £636bn paid out to shareholders over the same period.

The increased contributions would account for 6 per cent of FTSE 100 pre-tax profits, reducing shareholder dividends to £111bn.

Additionally, increasing deficit contributions by five times would mean 60 per cent of FTSE 100 schemes would reach buyout in five years, while still ensuring shareholders receive three times more than pensioners.

“Following record dividends, and recovering profits, many companies will also be coming under increasing pressure from The Pensions Regulator (TPR) to adequately fund their DB pension schemes and strike a more even balance between payments to shareholders and those to plug scheme deficits,” Griggs added.

“Having a robust, coherent plan in place for the DB endgame journey will be the best defence against any intervention from TPR, as it will take comfort from the framework that has been put in place.”

In May, the regulator said it was going to launch two consultations over the next year to give a clearer idea on how defined benefit pensions should be funded.

It will be responsible for monitoring thousands of schemes in relation to dividend payments, lengths of recovery plans.

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