Defined benefit pension scheme deficits are weighing heavily on the UKs leading companies with 49 members of the FTSE 350 making deficit contributions that exceed the cash they have available after covering their normal operations, Barnett Waddingham said yesterday.
Research carried out by the consultancy with input from the University of the West of England also found that for 29 FTSE 350 companies it would take more than a year to repay their DB scheme deficit using all the cash generated from day-to-day operations.
On average, DB deficit contributions are equal to 1.1% of total revenue for FTSE 350 companies, while the past three years have seen payments aimed at closing deficits amount to four and a half months' worth of cash generated by FTSE 350 firms' core activities.
Nick Griggs, head of corporate consulting at Barnett Waddingham said: 'A small number of high-profile companies are often highlighted for the size of DB pension obligations, but our research shows they are by no means alone. There are a number of options available to companies looking to manage their DB scheme liabilities.'
Barnett Waddingham found that 78 companies in the FTSE 350 could have funded a scheme buy-out - where they pay an insurance company to take over responsibility for paying scheme benefits - at the end of 2011 using their cash holdings.
Of these, 24 firms could have funded a buy-out using only the extra cash holdings they had built up over the course of 2011. While companies had chosen not to do so yet, Mr Griggs said potential regulatory changes could make de-risking more attractive.
'If the EU's proposals to extend the requirements of Solvency II to include DB schemes, which would significantly increase funding requirements, are not stopped then we would expect more companies to use the cash holdings they have built up to accelerate the de-risking of their DB scheme.'