Compound Income
  • Blog
  • Scores
  • Portfolio
    • Table of Returns
  • Resources
    • Check list
  • About
  • Contact



Beware of possible Pension & Dividend Cuts?

3/6/2016

3 Comments

 
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.


Picture
FTSE 100 Pension Deficits Click to enlarge
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.

All the dividends paid to Mr Green were paid when the pension fund had a healthy actuarial surplus.

Frank Field, as most politicians do, has put the cart in front of the horse. Although that wont stop them legislating on the matter.

Reply
Jamie link
4/6/2016 01:04:56 pm

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.

Reply
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?"

If we return to normalised interest rates, bond returns and a modicum or God for bid (though I think quite likely) high inflation in the next three to five years. Will these deficits largely disappear? I not saying that is the case but I am just asking the question.

That said as an investor I would very much like to see much more transparent declaration of pension surpluses/deficits in accounts even to the extent of making pension surplus/deficit (like accumulated depreciation) a balance sheet item.

Reply



Leave a Reply.

    RSS Feed

    Google+

    Archives

    December 2020
    November 2020
    October 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    October 2019
    August 2019
    June 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    August 2016
    July 2016
    June 2016
    May 2016
    April 2016
    March 2016
    February 2016
    January 2016
    December 2015
    November 2015
    October 2015
    September 2015
    August 2015
    July 2015
    June 2015
    May 2015
    April 2015
    March 2015
    February 2015
    January 2015
    December 2014
    November 2014
    October 2014
    September 2014
    August 2014
    July 2014
    June 2014
    May 2014
    April 2014
    March 2014
    February 2014
    January 2014

    Categories

    All
    32Red
    Aberdeen Am
    Admin
    A G Barr
    Alliance Pharma
    Alternative Telecoms
    AMEC
    Amino Technologies
    Amlin
    Anglo Pacific
    Asset Allocation
    Auto Trader Group
    BA Systems
    BATS
    Behavioural Finance
    Bellway
    Berendsen
    BHP Billiton
    Bloomsbury Publishing
    Bodycote
    Books
    Bovis Homes
    BREXIT
    Britvic
    Catlin-group
    Central Asia Metals
    Centrica
    Character Group
    Churchill China
    Cineworld
    City Of London Investment Group
    Clarkson
    Commercial Property
    Compound
    Computacenter
    Connect Group
    Croda
    Currencies
    Demographics
    Diageo
    Diploma
    Directors Dealings
    Dividends
    Easyjet
    Economics
    Emerging Markets
    Emis
    Empiric Student Property
    Etfs
    Fairpoint
    Ferguson
    Ferrexpo
    Finsbury Foods
    Food Retailers
    Forterra
    Games Workshop
    Gateley
    Go Compare
    Goid
    Greene King
    GSK
    Hargreaves Services
    Hays
    Headlam
    Hedge Funds
    Hill & Smith
    House Builders
    Howden
    HSBC
    IG Group
    Imperial Tobacco
    Indivor
    Inflation
    Insurance
    Intermediate Capital
    Interserve
    Investec
    Investment Trusts
    It
    ITV
    James Halstead
    Jarvis Investment Management
    JLT
    Jupiter Fund Management
    KCOM
    Kingfisher
    Legal & General
    Lloyds Bank
    Maintel
    Man Group
    Market Timing Indicator
    Market Valuation
    Marston's
    Matchtec
    Media
    Merlin Entertainment
    Micro Focus
    Mining
    Mitie
    Miton Group
    Moenysupermarket
    Mondi
    Moneysupermaket.com
    Music
    National Grid
    N.Brown
    News
    Next
    Nichols
    Norcros
    Oil
    Page Group
    Paypoint
    Pennon
    Persimmon
    Personal Finance
    Pharmaceuticals
    Phoenix Group
    Photo Me
    Photo-Me
    Plus500
    Podcasts
    Polar Capital
    Politics
    Portfolio
    Portmeirion
    Provident Financial
    PZC
    Qinetiq
    Ramsdens Holdings
    Rank Group
    Reckitt Benckiser
    Renewable Energy
    Renew Holdings
    Renishaw
    Research Papers
    Restaurant Group
    Retailers
    RIO
    RM Group
    Rolls Royce
    RPC
    RPS
    Safestore
    Sainsburys
    Savills
    Schroders
    Scores
    SCS Group
    Sell Discipline
    Shareholder Yield
    Share Picks
    Short Interest
    Somero
    Spectris
    Sprue Aegis
    SSE
    Stock Spirits
    S & U Plc
    TalkTalk
    Taptica
    Tax
    Technology
    Telecoms
    Tobacco
    Trading Ideas
    TSB
    TUI
    UK Market Update
    Unilever
    Utilitywise
    Value
    Victrex
    Vodafone
    VP.
    Water Utilities
    WH Smiths
    William Hill
    Wynstay
    XL Media
    XP Power
    Yield
    Zytronic

    googleda4a17cac6d02bb9.html
    File Size: 0 kb
    File Type: html
    Download File

Powered by Create your own unique website with customizable templates.
  • Blog
  • Scores
  • Portfolio
    • Table of Returns
  • Resources
    • Check list
  • About
  • Contact