No not another alarmist warning from the Project Fear / Remain camp in the EU referendum but a warning from Work and Pensions committee chairman Frank Field who plans to put a radical new bill before MPs, which could see defined benefit pension scheme members face cuts to their promised retirement incomes, according to this article on FT Adviser.com. In addition to saying:
"Members of final salary company pensions must face the fact their schemes may never meet their liabilities." Mr Field is also planning a separate bill which would prevent companies paying out generous dividends at the expense of their employees’ pension schemes, so shareholders beware if your company has large pension liabilities and or a pension deficit. Which is all quite topical with the recent financial problems at Tata Steel & BHS which include problems in dealing with their large pension deficits. Indeed in the above article he apparently said: "New rules are needed in light of the collapse of BHS in April, he said, which exposed a pension deficit at the company of half a billion pounds."Mr Field also suggested The Pension Regulator or the Pension Protection Fund could monitor company payments via dividends versus payments to its pension scheme. So it sounds like the political and regulatory environment could well become more difficult or hostile towards dividend where the sponsor has large pension liabilities or a deficit. Which set me thinking about those companies that are vulnerable to this background and which might be worth avoiding on that basis. Searching around I found the following articles which mention some of the likely candidates like International Airlines Group (IAG), RSA & RBS. The first is from City AM looking at FTSE Companies and the other from the Daily Telegraph looking at FTSE 250 Companies with 17 Companies identified having pension plans that dwarf their stock market value and represent “a material risk to their sponsors”. First Group topped the list along with some other well known names names such as AMEC, Balfour Beatty, Cable & Wireless, Carillion, Mitchell & Butlers, Stagecoach & Tate & Lyle. I note however that Rexam was on the list but that has not stopped it or AGA a little while ago from being bid for, so not an insurmountable problem in some cases I guess. The City AM article referenced a recent JLT Employee Benefits’ quarterly report on the FTSE 100 and their pension disclosures. I couldn't find an up to date one of these but managed to get hold of one from a couple of years ago from which the picture at the end is taken, although worth checking the up to date positions of the individual stocks mentioned in all these. I haven't seen any lists for small cap firms, but the same issues would apply and may be even more so. I would definitely say it is worth thinking about this issue carefully going forward as it could have quite a serious impact on your shares and dividends if you hold any of the likely candidates going forward and as always say you pay your money and take your choice, but whatever you decide, mind how you go.
3 Comments
catflap
3/6/2016 12:36:03 pm
But none of this would of made any difference to BHS, as the BHS pension was in surplus until quite recently. Even the "half billion pounds deficit", was a £200m deficit only 12 months ago.
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I agree the BHS situation is a bit of a Red Herring, but unlikely to stop politicians meddling with pensions, which they are very fond of doing. In addition I see they are even talking of bending the rules to let the Tata Steel Pension fund off some of its liabilities by changing the price indexing rules going forward from RPI to CPI. They say it is going to be a one off - but could set a dangerous precedent or be a precursor to a law change to allow it more widely perhaps. although I'm obviously not a Pensions expert.
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Michael Broom Smith
5/6/2016 12:25:00 pm
While these deficits seem enormous I do think we should remember the first law of large numbers: "ask the question: is it a large number?"
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