FTSE350 companies paid 37 pence out of every £1 spent on defined benefit schemes towards clearing pension deficits last year, according to actuaries Barnett Waddingham.
Although deficit contributions were now at their lowest level for five years, 40% of companies were still paying more towards deficits than they were towards future pension provision for their employees, Barnett Waddingham's examination of 220 FTSE350 companies with DB pension arrangements found.
Nick Griggs, head of corporate at the firm, said: 'The fact that 37p of every pound spent by companies on pensions is paid towards clearing pension deficits is striking and illustrates just how much companies are still having to pay in order to reduce funding shortfalls.
'This 37p, along with the significant amounts that have been paid historically, is being diverted to pay for pensions for the generation of employees lucky enough to receive a DB pension.'
Nonetheless, the overall picture of DB funding last year was better than in previous years, according to the firm's fourth annual Impact of pension schemes on UK business report. It found that the total level of DB deficits decreased from £63bn to £56bn in 2013 because of good asset performance as well as rising bond yields.
Griggs pointed out that deficit contributions seemingly placed less strain on company finances.
Meanwhile, in the report, Barnett Waddingham noted that the Pensions Regulators’ new funding Code of Practice for DB pension schemes, which focuses on sustainable company growth would give employers 'more breathing space' in future.
'With TPR's new funding Code of Practice promising to be less restrictive on corporates going forward, directors should be optimistic about the future,' Griggs said.
The firm's research also noted that DB schemes were having a significant impact on shareholder returns with deficit contributions of 33p being paid for every £1 paid out in dividends.
Shareholders, including defined contribution savers, would also welcome the increase in dividend payments compared to DB scheme deficit contributions 'which must have been a major drag on shareholder returns,' Griggs said.
Significantly, the FTSE 350 still has 180 companies offering some of their current employees access to a DB pension at the time of reporting their 2013 financials.
Griggs concluded: 'With the end of contracting-out for DB schemes on the horizon and with the pensions minister's crusade to introduce a legal framework that will allow companies to offer some form of "risk sharing" pension arrangement, it will be interesting to see how pensions or perhaps more accurately in future "retirement savings" will change over the next few years.'
