Britain’s biggest companies paid out five times more to their shareholders than they spent plugging the gaps in their pension funds, according to a report.
In what is set to fuel anger over pension scheme funding following the BHS collapse, research revealed FTSE 100 firms with defined benefit schemes – offering a guaranteed income in retirement – paid out £71.8 billion in dividends last year compared with £13.3 billion in pension contributions.
The report, by pensions experts Lane Clark & Peacock (LCP), found that of the 56 blue chip firms which disclosed a shortfall in their pension funds last year, they paid out £53 billion in divis to investors against £9.5 billion in pension contributions.
hose firms could have more than wiped out a combined deficit of £42.3 billion with the cash handed out in divis.
The findings come amid mounting fury over firms putting investors over pension fund members.
Retail tycoon Sir Philip Green recently came under heavy fire in an MPs’ report after the collapse of BHS left the chain with a £571 million pension deficit, while his family and other investors were paid more than £400 million in dividends.
He is in talks with the Pensions Regulator over a rescue deal for the BHS scheme and has pledged to address the funding woes.
Tata Steel, which owns Britain’s largest steel works in Port Talbot, is likewise in discussions with the Government over a restructuring for the British Steel pension scheme, which has liabilities of more than £14 billion.
LCP cautioned that other firms with pension funding gaps could face action from the regulator on their dividend policy.
Bob Scott, a senior partner at LCP, said: “The collapse of BHS and the potential sale of Tata Steel UK, both with underfunded pension schemes, have highlighted the significance of pension liabilities and the impact that a large defined benefit scheme can have on a UK company.
“Companies with large deficits may see pressure from the Pensions Regulator on their dividend policy in light of the Select Committee’s report into BHS.”
The report also highlights the funding crisis faced by pension schemes following the Brexit vote, with the shortfall in FTSE 100 firms hitting a mammoth £63 billion last week
This is up by £42 billion since just before the referendum and £17 billion since the end of July alone as the interest rate cut and Bank of England’s quantitative easing programme to ward off recession hits the value of pension fund assets.
Nigel Green, founder and chief executive of financial advice firm deVere Group, said the Brexit vote had created “the mother of all storms for pensions” and warned it could “topple” some firms and their pension schemes.
He said: “All in all, Brexit has been disastrous for UK pensions.”
“The scale of these enormous deficits casts doubt on the very survival of many company pension schemes and in order to survive they will need to make drastic changes to the terms of employees’ pension schemes,” he added.
But the Pensions Regulator said its calculations from earlier this year suggest that despite soaring deficits, most schemes should be able to at least maintain existing funding plans, even if some firms cannot increase contributions if they need to invest for growth.