On the go: Almost two-thirds (61 per cent) of listed companies sponsoring defined benefit schemes have issued profit warnings in 2020, according to analysis by EY.
Some 228 such sponsors have issued profit warnings this year, of which 90 per cent were related to the coronavirus pandemic and the resulting lockdown.
Sponsors with DB schemes are significantly more likely than those without to have issued a profit warning, the analysis noted. There are 1,204 listed companies in the UK, of which 28 per cent, or 281, have such pension funds.
While 34 per cent of all listed companies have issued profit warnings, that figure soars to 61 per cent among sponsors with DB schemes.
The disparity is so great that, despite only making up 28 per cent of the total of listed companies, sponsors with DB schemes make up almost half, or 44 per cent, of the total 524 profit warnings issued during the first three quarters of this year.
The analysis attributes this in part to the prevalence of DB schemes in older, more traditional industries that have been especially vulnerable to the economic shocks caused by the government’s lockdown policies.
According Gareth Mee, UK actuarial leader at EY, the “sheer volume of profit warnings issued by companies with a pension scheme in the year to date underlines the market pressures many companies are facing as they work to keep the wheels turning on operations, while also continuing to meet their pension obligations to members”.
He said: “It is vital that boards do not underestimate the depth and extent of both the immediate and long-term challenges ahead, as Covid-19 is not a temporary earnings challenge and is likely to change how businesses and investors operate. Given the volatility, now is a good time to consider a plan for pension scheme derisking.
“The financial market backdrop is volatile. The lower than ever yield environment, the US election and Brexit, among other potential risk events, will increase the pressures across many pension schemes’ investment portfolios.”
In addition, ongoing local lockdowns and further disruption to the UK’s economic recovery will prolong the hardship in many sectors.
“As we look to the end of the year, the mounting red flags of financial stress add to the growing concern of the hundreds of thousands reliant on pension schemes for their future wellbeing,” Mr Mee said.
“Boards that plan carefully, are agile in their response and allocate capital wisely will have the best chance of riding this challenging economic period,” he concluded.
