FTSE 100 companies paid five times more in dividends than into pensions

The combined pension deficit of the 56 companies in the FTSE 100 that disclosed a deficit at their 2015 year-end was £42.3bn

The collapse of BHS and the subsequent Parliament select committee appearance of Sir Philip Green highlighted the significance of pension liabilities (Rex)

Britain’s biggest companies paid their shareholders five times more than they spent on pension contributions last year, a new report shows.

In 2015, FTSE 100 companies paid £71bn in payments to shareholders, according to a survey by Lane Clark & Peacock (LCP), a pensions expert. This compares to only £13.3bn paid towards their defined benefit pension schemes, which offer a guaranteed income in retirement.

The combined pension deficit of the 56 companies in the blue chip FTSE 100 index that disclosed a deficit at their 2015 year-end was £42.3bn, LCP estimated.

Those same companies paid £53bn to shareholders last year.

The announcement comes at a time of heated debate over dividend payout.

BHS’s pensions scheme had a £571m hole when the high street retailer collapsed. This figure has now increased to around £700m due to unfavourable market movements, leaving 22,000 members facing cuts to their retirement income.

The British Steel pension scheme, backed by Tata, also has an estimated deficit of £700m which has complicated the quest to find a new owner for Tata’s factories.

“The collapse of BHS and the potential sale of Tata Steel UK, both with underfunded pension schemes, have highlighted the significance of pension liabilities and the impact that a large defined benefit scheme can have on a UK company,” said Bob Scott, LCP’s senior partner and author of the report.

“Companies with large deficits may see pressure from the Pensions Regulator on their dividend policy in light of the Select Committee’s report into BHS,” he added.

BT is the FTSE 100 company with the biggest pension deficit at £7.6bn, the report found. It is followed by Tesco and BAE Systems with pension deficits of £4.8bn and £4.5bn respectively.

Record low bond yields pushed the liabilities of UK pension schemes up to an all-time high £2.3 trillion on 1 July, increasing the yawning deficit to a record £935bn, including a £115bn hit from the EU referendum result, according to Hymans Robertson, an independent pensions consultancy, making it responsible for £115bn of debt.

“The gyrations in UK pension deficits are eye-watering. But one of the biggest factors that will determine whether or not pensions are paid to scheme members in full will be the health of the sponsoring company post Brexit,” Patrick Bloomfield, partner at Hymans Robertson, said.

Ros Altman, the former pensions minister, warned pensions could be under threat from the economic turmoil following UK’s vote to leave the EU.

“Good pensions depend on a good economy. Markets don’t like uncertainty, and we are clearly in unchartered territory,” Altmann said at an event in London.

The companies with the biggest pensions deficit:

BT Group : £7.6bn

Tesco: £4.8bn

BAE Systems: £4.5bn

BP: £4.2bn

Royal Dutch Shell: £2.9bn