FTSE 350 defined benefit (DB) deficits could be a thing of the past with just six months of dividend payments, latest analysis by Barnett Waddingham reveals.
The consultancy said dividends paid by FTSE 350 firms with a DB pension scheme rebounded from the Covid-crash last year, bouncing to £70.7bn in 2021.
It said this dividend recovery was likely to continue this year - with latest research from Link Group expecting full year dividends paid by the main market to hit £97.4bn this year. Barnett Waddingham said the pattern would be the same for FTSE 350 firms with a DB scheme, even though a full-year figure was not yet available.
Barnett Waddingham said the aggregate buyout pension deficit for those DB schemes had also dramatically improved - from £185bn in December 2021 to around £28bn at 30 September 2022.
It said that in December 2021 it would have taken 16 months of dividend payments to remove DB scheme risk but says the improvement in DB scheme funding positions now puts that figure closer to three to six months.
Barnett Waddingham partner Simon Taylor said: "While this may be more of a thought experiment than a plan, it puts into perspective the scale of DB scheme liabilities for companies. For many, only a small proportion of dividend payments would need to be reallocated to bring schemes to buyout.
"Given the recent volatility in the pensions market, companies are likely to want to get schemes off their balance sheet and over to an insurer or consolidator as soon as possible. This would enable companies to focus on their day job rather than managing legacy pension risk. And its likely shareholders would be amendable too; only a brief reduction in dividends to remove exposure to DB pension risk forever."