Watchdog warns pension funds come before dividends

by Gill Montia

Story link: Watchdog warns pension funds come before dividends

The UK Pensions Regulator is warning companies that they must put the health of their pension funds before shareholders’ dividends.

In a letter to employers with defined benefit and final salary schemes, the chairman of watchdog, David Norgrove, has stated: “There is no reason why a pension scheme deficit should push an otherwise viable employer into insolvency.

But the pension recovery plan should not suffer, for example, in order to enable companies to continue paying dividends to shareholders.”

Mr Norgrove argues that pension schemes are long-term and that the challenges of the current economic downturn should also be seen in the longer-term context.

Total defined benefit pension deficits are estimated at £191 billion, up from £49 billion a year ago, according to research carried out for the Pension Protection Fund.

The research also revealed that of the 7,800 schemes surveyed, only 812 funds (around 10%) were in surplus.

Meanwhile, a recent survey by the National Association of Pension Funds suggests that one-quarter of the UK’s leading private sector companies expect to close their final salary pension schemes to existing members in the next few years.

Many such schemes have already been closed to new members but generally, those already contributing have been allowed to continue to accrue entitlements.