FTSE 100 dividends vs. deficit contributions

Published by Nick Griggs, Lewys Curteis on

With the DB regulatory regime once again under review, the disparity between payments to shareholders and those paid to close pension scheme deficits will once more be under the spotlight. Getting this balance right remains an important consideration in setting your strategy for reaching the endgame. Our analysis provides an interesting insight into current market trends that will help those setting or reviewing their strategy.  

Our analysis of FTSE 100 companies shows that dividends have been steadily increasing over the period since the financial crisis, while deficit contributions have reduced slightly. 

"Increasing deficit contributions by five times would put 60% of FTSE 100 schemes in a position to buyout in the next five years"

The median deficit contribution as a proportion of dividends for the FTSE 100 companies was 7% in 2018.  For many companies there will a good reason for this, but there is no doubt that The Pensions Regulator (TPR) will be scrutinising this balance even more closely over the coming years.

With the DB pensions endgame becoming a realistic medium-term target for a number of organisations, any regulatory pressure to push up deficit contributions could accelerate the time taken to achieve this endgame.  In our analysis, we take a look at how changes in contributions impact on the time to buyout for the FTSE 100 organisations.

Ultimately, having a robust, coherent plan in place for the DB scheme endgame that demonstrates a fair balance between the pension scheme and shareholders will be the best defence against any intervention from TPR.


Key findings

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median deficit contribution as a proportion of dividends for FTSE 100 companies

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the increase in net dividends since the financial crisis for FTSE 100 companies

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the decrease in deficit contributions since the financial crisis for FTSE 100 companies

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of FTSE 100 companies could buyout within 5 years if contributions are doubled


 

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