On the go: The number of profit warnings issued by UK companies with a defined benefit scheme has increased to 34 in the first half of the year, representing a 70 per cent rise over the same period in 2021.
The EY-Parthenon analysis revealed that of the 136 UK-listed companies’ warnings issued in the first half of the year, a quarter came from companies sponsoring a DB scheme.
The overall number of profit warnings rose by two-thirds in the first half of the year to 136, up from 82 warnings in the same period in 2021.
The research also showed that of the warnings issued in the first six months of 2022, 19 were from consumer-facing sectors. A further seven were from industrial sectors.
These sectors have been adversely affected by cost pressures and supply chain disruption, along with being vulnerable to declines in business and consumer confidence, EY-Parthenon said.
Further reasons such as rising overheads, including increases in energy, fuel, wage and material costs, were cited as the main drivers for companies with a DB scheme issuing a profit warning, with 60 per cent of companies having said this was the main factor in the second quarter of 2022, up from 53 per cent in the first quarter.
This was then followed by supply chain disruption, increasing from 26 per cent of warnings in Q1 2022, to 33 per cent in Q2.
Despite the economic downturn, Eimear Kelly, EY-Parthenon’s head of pensions alternative financing solutions, pointed to the overall improvement in DB funding levels compared with last year.
“The PPF 7800 Index indicated that the aggregate surplus of the UK’s DB schemes increased to £267.9bn in June 2022, up from £104.7bn in June 2021,” Kelly said, which she largely attributed to increases in gilt yields.
“Due to the improvements in funding levels and the risks and challenges looking forward, we are seeing more corporates and trustees discuss how to lock in improvements alongside managing the risk of overfunding the pension scheme in the future,” she continued.
“While a surplus sounds like a nice problem to have, it restricts how sponsor capital is best allocated, as pension scheme funding can be a one-way valve — once money is paid in, it is notoriously difficult to extract and attracts penalty tax charges.
“This means a balancing act is needed to ensure a scheme is neither under nor overfunded, especially in the current challenging market.”
