Utilities firms in FTSE 350 spend more than double on pensions compared to average

Nick Griggs, Head of Corporate Consulting, Barnett Waddingham
Nick Griggs, Head of Corporate Consulting, Barnett Waddingham

Research by pension consultants, Barnett Waddingham, has found that during 2014, utilities firms within the FTSE 350 spent more than double the average for the FTSE 350 on pensions.

The sector spent almost a fifth (19%) of staff costs on DB and DC pension provision, contributing far more towards pension provision for employees as a proportion of staff costs than the average FTSE 350 firm.

Nick Griggs, Head of Corporate Consulting, Barnett Waddingham, commented: “Whilst deficit contributions have fallen to the lowest level since our research began in 2009 they still represent a significant cost for what is largely becoming a legacy benefit.

“The impact on shareholders remains substantial. The impact on business investment is impossible to quantify but the persistence of these deficits despite the contributions being paid must be having an impact for some in FTSE 350.

“Utilities companies reduced DB deficit contributions in 2014 from the previous year. Nevertheless, total pension provision represents nearly a fifth of all staff costs which is double the average for the FTSE 350.

“The outlook for IAS19 deficits remains uncertain with continued volatility in the key financial markets which drive the assumptions used to value the IAS19 liabilities.”

Barnett Waddingham’s annual research on FTSE 350 companies highlights the impact defined benefit (DB) – or final salary – pension schemes are having on UK businesses. The key findings specific to the utilities sector include:

  • The combined DB pension deficit for utility companies in the FTSE 350 fell from £2.9bn in 2013 to £2.4bn in 2014
  • On average, companies in this sector pay 43p of every £1 spent on pensions to reduce DB scheme pension deficits in comparison to an average of 32p for the whole of the FTSE 350
  • Overall, utilities companies in the FTSE 350 paid £450m towards DB pension deficits in 2014, down from £560m in 2013
  • Firms in the sector paid deficit contributions which were equivalent to one-sixth of their available flow during 2014
  • Two out of seven companies in the sector were paying more in deficit contributions than they were towards future pension provision

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