Top companies have ploughed over £35bn in their defined benefit pension schemes over the last three years but made little dent to their overall deficit levels, according to research published by Barnett Waddingham.
The survey of FTSE350 companies found that the total International Accounting Standard 19 deficit was £64.9bn, only £4.1bn lower than it was in 2009. This higher-than-anticipated deficit has been largely driven by the drop in corporate bond yields, which determine the IAS discount rate.
Over the last four years, the average FTSE350 company has paid 53p of deficit contributions for ever £1 of dividend paid to shareholders, the survey found.
It also highlighted 74 companies that were paying more to reduce their DB scheme deficits than they were towards future pensions provision for current staff.
On average, FTSE350 companies paid nearly £4,000 per employee to clear DB scheme deficits, an increase of 15% compared to 2011. By comparison, the cost of providing future pension provision for current employees, including defined contribution arrangements, remained static at £2,600 per employee.
There were 13 companies that paid deficit contributions that were greater than 30% of operating profit.
Commenting on the findings, Nick Griggs, head of corporate consulting at Barnett Waddingham, said the uncertainty around future contribution requirements to DB pension plans hampered businesses' future planning.
'This is highlighted by the persistence of large IAS19 deficits despite significant contribution payments and the resistance employers will face from scheme trustees should they want to reduce contributions if cashflow worsens,' he said.
'The Pensions Regulator's new statutory objective should help to reduce the impact pension scheme deficits have on the sustainable growth of employers. Our research emphasises the considerable volumes of cash DB scheme deficits are consuming and the knock on impact this must be having on investor returns and companies' growth plans.'
Griggs added that the effect of DB schemes was also hitting current employees in DC schemes. 'DB scheme deficits are consuming large amounts of company cash, which is limiting employer DC contribution levels and reducing investment returns on DC assets through reduced dividend payments.'
IAS19 is an accounting rule concerning employee benefits, under the International Financial Reporting Standards set by the International Accounting Standards Board. It defines employee benefits as including pensions and life insurance as well as salaries.