UK companies pay far more in dividends than pension contributions

Companies in the FTSE 350 index paid seven times more cash to shareholders in 2017 on a combined basis than they did plugging their pension scheme deficits, according to a new analysis.

The FTSE 350 groups paid £8.7bn in pension deficit contributions in aggregate last year, while £66bn was issued in dividends, said Barnett Waddingham, the actuarial consultants, which reviewed

companies’ accounts.

The analysis comes as the Pensions Regulator comes under increasing pressure from politicians to force companies to clear the deficits in their defined benefit pension schemes more quickly.

This follows recent high-profile corporate failures such as Carillion, the outsourcing group, and BHS, the high street retail chain, which were both criticised for prioritising shareholders over their pension schemes.

Some FTSE 350 companies have retirement funds with surpluses, while others have deficits.

Barnett Waddingham’s research found that, while the amounts vary significantly across the FTSE 350 index, the average pension deficit contribution paid by companies, as a proportion of dividends, was 10 per cent in 2017, the same as 2016.

“In the relatively positive economic environment over recent years, it would appear that the FTSE 350 companies have started to settle upon a favoured allocation of dividends and deficit contributions,” said Barnett Waddingham.

“Whether or not the Pensions Regulator is content with this balance between shareholders and [defined benefit pension] schemes remains to be seen.”

FTSE 350 companies paid five times more cash to shareholders than they did plugging their pension deficits in 2016, according to Barnett Waddingham.

The groups paid £11.8bn in pension deficit contributions, while £61bn was issued in dividends.

Barnett Waddingham found FTSE 350 companies ended 2017 with their retirement funds in a healthier state, largely because of improved market conditions that increased the value of their pension assets. This served to reduce pension deficits.

FTSE 350 companies were estimated on a combined basis to have pension deficits of about £55bn at the end of last year, compared with £62bn in 2016.

The £55bn figure was estimated to have narrowed further to £35bn by June 30 this year, again because of better market conditions.

The Pensions Regulator said: “Recent corporate failures have shown the risk in long [pension deficit] recovery plans while payments to shareholders are excessive, relative to deficit repair contributions.”

It added that pension scheme trustees should “negotiate robustly with their employer to secure a fair deal for the pension scheme while employers should balance their duties to pension savers with returns to shareholders”.

“What is reasonable will depend on the rate at which the contributions made by the employer are reducing the pension scheme’s deficit and whether trustees consider the residual risk to members to be acceptable,” said the Pensions Regulator.

The UK Shareholders’ Association said: “Every payment of a dividend is a preference against pensioner security and every payment to a pension fund is a preference against shareholders. Without clear guidance on how the balance should be struck companies can hardly be blamed for favouring their owners.”

The association added the Pensions Regulator should consider giving pension funds “the negotiating powers they need to achieve the balance of obligations considered socially desirable”.

Barnett Waddingham’s figures were calculated using accounting rules required for company balance sheets.

Pension scheme trustees and companies use actuarial calculations to decide on retirement fund deficit contributions.