UK-listed companies have significantly increased payouts to shareholders at the expense of shoring up their pension deficits, according to the British pension regulator.

New analysis by the Pensions Regulator (TPR) showed that the ratio of deficit repair contributions (DRCs) to dividends at 210 companies in the FTSE 350 fell from around 10 per cent in 2011 to 7 per cent by the end of the 2016 financial year.

The percentage of FTSE 350 companies that sponsor a defined benefit pension scheme that paid no DRCs, but paid dividends, rose from 11 per cent in 2011 to 15 per cent in 2016, based on latest accounting information.

“It is disappointing to see that the ratio of DRCs to dividends has declined,” said Andrew Warwick-Thompson, TPR’s executive director for regulatory policy.

“We are not against companies paying out dividends but employers must strike the right balance between the interests of the scheme and that of its shareholders.”

The regulator warned that it was “likely to intervene” if it saw a situation where a scheme was “not being treated fairly”, having made its expectations clear in its Annual Funding Statement issued in May.

The warning was contained in a report that set out the expected funding positions of 2,000 or so defined benefit (DB) schemes undergoing a three-yearly financial health check between September 2016 and September 2017.

Challenging market conditions has led to a significant jump in deficits and lower funding levels for certain DB schemes, said the regulator, as better than expected asset growth failed to outpace an increase in liabilities.

It said the “majority” of schemes remained affordable but many employers should do more to tackle their deficits and reduce risk to pensioners.

“It is encouraging that 85 to 90 per cent of schemes currently preparing their valuations have employers with sufficient financial resilience to be able to afford to manage their deficits, and don’t have a long-term sustainability challenge,” added Mr Warwick-Thompson.

The combined deficit of the UK’s 5,800 DB pension schemes stood at around £510bn in May, according to PwC.

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