The level of employer support for defined benefit (DB) pension schemes at FTSE 350 firms hit a three-year low as a result of COVID-19, before rebounding as lockdown restrictions were eased in the summer.
That is according to a recent study by PricewaterhouseCoopers (PwC), which found that almost half of the employer support gains made since the financial crisis were wiped out during the coronavirus outbreak this year.
FTSE 350 firms registered a score of 81 in PwC's Pensions Support Index (PSI) in March, which was the lowest level recorded since mid-2017, with companies in the consumer discretionary sector hardest hit.
However, by the end of June, the index had recovered to 87, only one point lower than the same time last year, but below the pre-crisis score of 90.
“Despite the continued uncertainty, management teams are becoming increasingly comfortable sharing their best view of how their business is expected to perform over the short to medium-term with trustees,” said Minesh Rana, pension director at PwC.
“In many cases companies have outperformed their forecasts from earlier this year and I have seen growing confidence from management teams in the achievability of forecasts being shared now.”
The PSI tracks the relationship between the financial strength of FTSE 350 companies and their DB pension obligations, indicating the overall level of employer support offered to these pension schemes.
Rather than just looking at the absolute size of the obligations, it compares the deficit number to the cash generation, profitability and assets of companies supporting their schemes.
PwC warned that the PSI score is likely to remain volatile in the coming months due to the ongoing disruption caused by COVID-19, but highlighted how scenario planning has improved in recent months.
“In a number of cases we’ve also found it effective to plan for a number of scenarios, rather than waiting to see which scenario would play out,” Rana continued.
“This is going to become particularly important during the second lockdown as it will mean trustees can have an informed voice in the discussions with other key stakeholders whilst they are taking place, rather than being notified of what has happened later down the line, when all meaningful decisions have been taken.”
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Author: Chris Seekings