A study, based on FTSE 250’s biannual report, has found that up to twelve more companies will need to pay two years worth of dividends. While 56 other companies will have to make their payments in one year’s dividends.
20 firms had pension liabilities much greater than the equity market value. Go-Ahead Group has an equity market value of £834 million, and liabilities equaling 407%.
The firm’s scheme had a total of £3.4 billion in liabilities, and £2.7 billion in assets. This has resulted in a £652 deficit, and on the IAS 19 accounting measure, has funding level of 81%.
Charles Cowling, an Employee Benefits Director for JLT has said that these companies need to fix the deficits in order to keep being competitive. This is also incredibly important now as Brexit may create issues in market stability.
Even though the measurements do not provide a complete understanding of the issue, it does provide a good indication of the sponsored company’s pension drag. High levels of debt can also hinder the company’s ability to invest into research and development, as well as improve on their operations, hiring skilled staff, and severely affecting the company’s competitiveness and their long term prospects. This is especially important to understand as Brexit has created an increasing amount of uncertainty in terms of trade regulations and tariffs.