More than half (57 per cent) of the 14 profit warnings issued by UK-listed firms with a defined benefit (DB) pension scheme during Q3 cited the impact of policy change and geopolitical uncertainty, marking the highest proportion ever recorded for this cause, EY-Parthenon has revealed.

The group's latest Profit Warnings report revealed that the number of UK-listed firms with a DB pension scheme issuing a profit warning has fallen since the same point last year, with 48 profit warnings so far this year, down slightly on the 53 issued at the same stage of 2024.

However, the proportion that were due to the impact of policy change and geopolitical uncertainty hit a record high, marking a "significant" year-on-year increase from 15 per cent in Q3 2024.

The other two main drivers of warnings during the third quarter were contract and order cancellations or delays, and weaker consumer confidence, both accounting for 29 per cent of warnings.

According to the report, warnings from UK-listed companies with a DB pension scheme accounted for over a fifth (22 per cent) of the 64 issued by all UK-listed businesses in the third quarter, and more than a quarter (27 per cent) of all UK-listed companies with a DB pension scheme have issued a profit warning within the last 12 months.

EY-Parthenon partner and UK pensions covenant advisory leader, Karina Brookes, said that the findings highlighted the challenges that ongoing policy and geopolitical uncertainty are creating for schemes and sponsors when it comes to developing their long-term strategies.

"For employers, the stronger funding position of many schemes may mean there is an opportunity to use surpluses in the short-term to mitigate pensions costs such as expenses and unfunded liabilities, and potentially even support DC funding," she explained.

"For trustees of schemes that have a surplus available, their focus will be on ensuring that the position of their members is protected while exploring the variety of options now available or coming to market. In this environment, it will remain critical to ensure any covenant support is fit for purpose.”

However, there could also be an opportunity to de-risk and lock in recent funding gains, as EY-Parthenon UK pensions consulting leader, Paul Kitson, suggested that, for those schemes with the funding and willingness to buyout to separate themselves from their sponsor and secure benefits with an insurer, now may be the time to move quickly.

“We find ourselves in an interesting juxtaposition, where DB pension schemes remain very well-funded, yet there is significant uncertainty impacting schemes’ sponsors," he stated. "This is particularly timely, as buyout pricing remains highly attractive by recent standards.

“For schemes looking to run on, the ongoing geopolitical turbulence means that ensuring strategies are robust against sponsor volatility and external headwinds remains crucial.”

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