FTSE 100 firms 'pay more in shareholder dividends than pension deficits'

More than half of FTSE 100 companies are paying out shareholder dividends worth more than their employee pension deficits, report claims.

A large number of Britain’s biggest companies are paying out dividends to shareholders despite having funding deficits on their staff payment schemes, it has been claimed.

Research by investment platform AJ Bell found that 54 FTSE 100 companies paid out £48 billion in dividends a year for the past two years. That is almost equal to the total deficit of their pension schemes, which stands at £52 billion.

The news comes as Sir Philip Green faces the Work and Pensions Select Committee to discuss the BHS pension scheme deficit. The high street chain has gone into administration with 11,000 jobs at risk.

The firm has a pension deficit of £571 million, yet it continued to pay out dividends right up until its collapse.

Why this is happening

“The collapse in interest rates and bond yields to record lows for a sustained period of time has contributed to substantial pension deficits for many firms and this has been bought into stark focus by the plights of BHS and Tata steel in recent weeks,” says Russ Mould, investment director at AJ Bell.

“Management teams face difficult decisions around how to allocate capital to ensure profitable growth and sustainable shareholder payouts. Emerging holes in their pension schemes add another difficult dimension but it is one that they cannot ignore.”

Some big names including Royal Dutch Shell, GlaxoSmithKline and Vodafone are all paying out millions in dividends despite having funding shortfalls in their pension schemes.

Royal Dutch Shell had a £6.7 billion pension deficit in 2014 it paid out £7.5 billion in dividends that same year. AJ Bell’s research suggests firms need to pay more attention to sorting out their pension schemes rather than pleasing investors.

“Dividend cuts and under investment in the business are perhaps more obvious actions senior executives want to avoid. However, insufficient contributions to the pension fund could leave the company with hefty liabilities which could drag on future performance and ultimately lead to staff receiving lower pensions if the business runs in to difficulties and enters administration,” says Mould.

It isn’t acceptable to rely on improving market conditions to life pensions, he adds.

“With prospects for higher bond yield sand interest rates looking slim, there is a huge question for companies to answer around whether they are adequately funding their pension schemes in order to sustain the futures pensions of their work force.”

Who is paying out more in dividends than their deficit?

Here is a rundown of the companies who are paying out more in dividends than their pension deficit, according to AJ Bell:

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