Barnett Waddingham on dividends vs DB pension deficits: “As the rebuilding continues, companies will face competing demands from a variety of stakeholders”

The Pensions Regulator (TPR) has been putting pressure on UK companies to ensure they’re treating stakeholders fairly, including the approach to shareholder dividends versus DB scheme funding. Simon Taylor, Partner at Barnett Waddingham, offers insight on the dividend rebound, the parallel recovery of UK DB pension scheme funding, and what it means for FTSE 350 companies and scheme trustees.

Simon Taylor, Partner at Barnett Waddingham, says:

“It’s clear from the dividend rebound that a sense of normality is returning for UK corporates. Fortunately, the same could be said for the funding level of UK DB schemes. Barring any further shocks to financial markets, many schemes will find themselves in a stronger position than they were prior to the pandemic. Indeed, our recent analysis of the FTSE350 DB schemes showed that the average time to buyout for these schemes is now ahead of pre-pandemic expectations.

“As the rebuilding continues over the coming months, companies will face competing demands from a variety of stakeholders, and striking the right balance will be challenging. For companies with a DB pension scheme, revisiting the journey plan should be high on the list of priorities. Given the dramatic resurgence in DB scheme funding levels, the time to endgame may now be closer than expected, and companies should ensure that they are appropriately prepared for the final stages of the journey. As well as a fresh look at the scheme’s funding and investment strategy, companies should be aware of the actions that could be taken to accelerate the time to endgame, such as member option exercises. Having a clear decision-making framework will allow companies to capitalise on any further opportunities that might arise, and allocate capital in the most appropriate manner.”

Key data points from Barnett Waddingham’s recent research on FTSE350 DB Funding

  • The DB pension schemes of the FTSE 350 firms have bounced back from the economic impact of Covid-19, and are now actually beating pre-Covid expectations; the average time to buyout now stands at around 7 years and 5 months
  • This recovery has been spurred by a rebound in financial markets, leading to the aggregate buyout deficit of FTSE350 DB schemes standing at £130bn, a reduction of £80bn since the end of May last year
  • Deficit contribution levels fell by around £1.6 billion in 2020 (excluding a one-off £1bn paid by BAE systems) – but less than a third of this was a result of Covid-19 deferrals.


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