More than half of the companies in the Financial Times Stock Exchange 100 index would be able to clear their defined benefit pension deficits in less than two years if they withheld dividends to shareholders, according to a new report by British pension consultancy JLT Employee Benefits.
The report also found only six FTSE 100 companies are spending more in contributions to their defined benefit pension plans than in dividends to their shareholders. Only seven companies would need a payment of more than two years’ dividends into their pension scheme in order to clear the outstanding deficit.
“There are a significant number of FTSE 100 companies where the pension scheme represents a material risk to the business, with eight companies having total disclosed pension liabilities greater than their equity market value,” said Charles Cowling, director of JLT Employee Benefits, in a news release.
“This is likely having a negative impact on equity prices and raises the radical question of whether it could make sense to erase pension deficits altogether by using funds that would normally go out as dividends or by borrowing from the capital markets.
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The report also found:
- Only 54 FTSE 100 companies are still providing more than a handful of current employees with defined benefit pensions.
- Of these, only 23 companies are still providing defined benefit pensions to a significant number of employees.
- In the last 12 months, the total disclosed pension liabilities of the FTSE 100 companies have fallen from £614 billion to £586 billion.
- A total of 16 companies have disclosed pension liabilities of more than £10 billion, the largest of which is Royal Dutch Shell with disclosed pension liabilities of £57 billion.
- In the year to 30 June 2016, FTSE 100 deficit funding totalled £6.3 billion, up from £6.1 billion the previous year.
“The good news aspect of all this is that it is clear that for the very large majority of FTSE 100 companies, their pension deficits can be easily managed within the normal ongoing management of their capital structure – even for some of those with very large pension deficits,” said Cowling.