Investment critics in New York City have warned that the FTSE 100’s post-pandemic earnings recovery could slow “within weeks” in tougher new rules on pension funding that take effect next month.
According to a new analysis, after lower dividend levels last year, dividends for shareholders at some of the UK’s largest companies rebounded in the first half of 2021.
Shell, Rio Tinto, NatWest and ITV are among the largest publicly traded companies that have repaid shareholders with increased or even record expenses after the first phase of the pandemic.
The LCP actuarial consultant said dividends paid from the UK’s 100 largest listed companies have fallen from around £110bn in 2019 to just over £70bn in 2020, but the 2021 announcement suggests most of the decline this year could reverse it.
However, the LCP believes that due to the increased powers of the UK pension regulator which came into effect on October 1, the pace of dividend recovery for companies with defined benefit plans may slow.
According to the new legislation, if the payment of dividends results in a “significant reduction” in the expected recovery of a defined pension plan in the event of bankruptcy, the company’s directors and other associated employees may be subject to the law. challenge.
“Government and regulators are keen to avoid a situation in which the company goes bankrupt and leads to holes in the retirement plan after paying large dividends to shareholders,” said Laura Amin, president of LCP.
“At the very least, the company’s board needs to consider more carefully the impact of putting in place the pension plan when determining dividends, and if high dividends continue to be paid, the plan will be better able to demand greater security,” he said. added.
Depending on the company’s response to the increased strength of regulators, Amin said, “we could see the 2021 earnings bubble burst within weeks.”
According to the latest analysis from the Pension Protection Fund, around half of the UK’s 5,300 defined benefit plans are facing a shortage of funds, and the Pension Protection Fund is an industrial lifeboat for members of loss-making corporate pension plans.
Currently, employers sponsoring defined benefit plans are trying to make up for any shortfall in member funds and pledge to receive lifetime pensions.
In response, the pension regulator stated that it remains a “proportionate and risk-based regulator”.
“Our new strength should not be tied to employers sponsoring equal treatment pension plans, such as a prudent placement of dividends based on contract strength,” he said.
He added, “We set out our expectations in our annual funding statement, and this year the statement also calls on trustees to continue to engage with employers, who in many cases are coming out of tough business times.”
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