The covenant strength of FTSE 350 companies’ pension schemes reached the same level at the end of 2017 as 2007, PwC has found.

According to PwC’s Pension Support Index, FTSE 350 firms’ ability to support their defined benefit pension obligations has returned to pre-recession levels after a decade.

Tracking the relationship between the financial strength of FTSE 350 companies and the size of DB pension commitments to rate overall employer support, the index score improved to 87, only one point lower than the previous high of 88 prior to the financial crash.

Although these companies’ ability to pay their schemes has improved, the gap between companies that are performing well and those struggling has continued to increase.

PwC head of pensions credit advisory practice Jonathon Land explained that the index score had improved year-on-year due to improved company performance and better returns on investment for schemes. “Whilst this brings the index back to the level it was ten years ago, it masks the fact that over this time there have been many winners and losers within the FTSE 350,” he said.

Land added that sectors including retail had been impacted by online sales growth, increased economic instability and uncertainty surrounding Brexit. “At the same time, regulation is set to change and the demands placed by The Pensions Regulator on trustees and sponsors are set to increase.”

Moreover, PwC warned that there are significant challenges looming, with Brexit, economic uncertainty and increased regulation, which will all be high on the agenda of scheme trustees and sponsors.

PwC retail strategy director also commented: “As a result of the continued upheaval in the sector, we expect that trustees and sponsors will have to make tough decisions quickly in response to the challenges that retailers are facing.”

Considering the impact of Brexit on these firms’ strength, PwC senior adviser Michael Moore added: “The greater the dependency on trade with Europe, or on European employees, the more disruptive Brexit will be for those sponsors. Regardless, all sponsors and pensions scheme trustees should have a plan on how Brexit will impact them.”

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