Employer support drops for FTSE 350 DB pensions

Universities Superannuation Scheme launches consultation on changes to pension valuation

Employer support for defined benefit (DB) pension schemes has fallen to levels similar to those at the start of the Covid-19 (Coronavirus) pandemic.

PricewaterhouseCooper’s (PWC) latest Pension Support Index (PSI) measures the profitability, cash generation and balance sheet strength of corporates that are sponsors of DB schemes, and compares that to the size of the obligations of FTSE 350 companies. The higher the rating, which is out of 100, the greater the ability of the employer to meet their pension obligations.

The impact of the first lockdown saw the PSI fall to 81 in March 2020 from 90 in December 2019, before increasing to 87 following the easing of restrictions in June 2020. Further restrictions over the winter saw it drop back down to 83 in March 2021.

The analysis highlighted that 51% of schemes in the FTSE 350 have a score of 95 or over, however the proportion of those with a score of 60 or below has more than tripled to 17% compared to 5% in June 2020, suggesting a lower level of sponsor support offered.

Stephen Soper, pensions partner at PWC, commented that the recent decrease in the PSI score is primarily due to significant reductions to profitability and cash generation experienced by many FTSE 350 companies, as a result of the pandemic.

He explained that over the past year, sponsors have had to navigate multiple lockdowns at both a national and regional level, as well as contend with disrupted supply chains and adapt their businesses so that they do not breach the changing government guidance.

“The significant increase in the number of sponsors which only offer limited levels of support shows that the future for some pension schemes looks increasingly uncertain. For trustees with weaker sponsors, now is a good time to be considering the full range of options, including the non-cash options, available to protect their covenant,” Soper said.