Consulting » Half of FTSE 350 defined benefit pension schemes ‘cashflow negative’

A THIRD of UK companies with defined benefit pensions schemes are paying out more from their scheme in pensions than is being received in contributions, a survey of chief financial officers has found.

According to research from Hymans Robertson these CFOs say their primary focus for managing their schemes is ensuring they don’t have to sell assets at depressed prices to meet pensions promised to retired or former workers.

Earlier this month the Pension Regulator (tPR) underlined the importance of DB schemes understanding and managing cashflow risk for the first time.

According to Hyman’s analysis, 50% of FTSE 350 schemes are already, or soon will be, in a situation where pension payments exceed the contributions coming into the scheme – in other words, ‘cashflow negative’.

In 2015 £20bn more was paid out in pensions than received in contributions across UK DB schemes. This will increase to £100bn by 2030, Hymans said.

“The problem is only going to get worse as schemes become increasingly mature,” said Jon Hatchett, partner and head of corporate consulting at Hymans Robertson. “Being cashflow negative heightens the risk of being forced to sell assets at a time when you either hadn’t planned to or don’t want to, perhaps due to a dip in markets.

“Being a forced seller of an asset with a volatile price should be avoided at all costs, as during a market slump a greater proportion of the asset base needs to be sold to meet benefits. The remaining funds then have less potential to bounce back in a market recovery. It’s reassuring to see that CFOs are aware of this risk.”