Over half of the UK’s FTSE 100 companies would pay off their defined benefit (DB) pension deficits in less than two years by withholding dividend payments, researchers said.
Charles Cowling, director at the firm which carried out the research, JLT Employee Benefits, said action on deficits was needed and that eight companies had total disclosed pension liabilities greater than their equity market value.
The firm also found that only six FTSE 100 companies were spending more in contributions to their DB schemes than in dividends to their shareholders.
Moreover, only seven companies would need a payment of more than two years’ dividends into their DB schemes in order to clear their balance sheet.
However, there are others who think that withholding dividends is not the best way to bring down pensions deficits.
Darren Redmayne, head of Lincoln Pensions said that withholding dividends where there is a healthy sponsor covenant that can afford to pay a deficit over time could worsen shareholder value, make UK companies less investible and negatively impact the businesses supporting the pension schemes.
“So somewhat counter-intuitively, such an approach could damage both the shareholder value and the security of the member benefits you are trying to improve. There is no requirement to clear a pension deficit as soon as possible,” he added.
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