You may have seen headlines last week revealing that
'Britain's biggest companies paid their shareholders five
times more than they spent tackling their pension deficits last
year'. This was the conclusion the media drew from a report by LCP, the actuarial consultancy,
looking at how FTSE 100 companies manage their pension risks.
The conclusion that you might draw from these headlines is that
large companies are recklessly providing short-term gratification
to shareholders at the expense of the long-term wellbeing of both
the company and its pensioners.
On the face of it, this is an example of directors reading only
the bit of the Companies Act that says they have a duty to promote
'the benefit of [the company's] members' and forgetting
that it goes on to say that in doing so they must consider 'the
likely consequences of any decision in the long-term' and
'the interests of the company's employees', including
its former employees.
For some companies that may be true. But if you have the time
and inclination to look at the underlying data then a rather more
nuanced picture emerges. And if you do not have the time and
inclination, do not worry – we have done it for you!
Before getting to the analysis, I should make the obvious point
that paying dividends is not in itself an example of
'short-term' thinking. If companies want sustained support
and funding from their shareholders then they need to provide them
with a return on their investment.
Where it becomes a problem is when there appears to be no
parallel investment in securing the long-term future of the
company, whether that is in order to reduce risk (including pension
risk) or to generate future profits, for example by investing in
So when we analysed the LCP data we looked for evidence that
companies had recognised the need to reduce their pension risk as
well as satisfying the shareholders by providing a dividend.
The data shows that 43 of the 56 FTSE 100 companies that were
running a pension deficit in 2015 had reduced the size of that
deficit over the previous 12 months, and that a further seven
companies had eliminated their deficit entirely over that
You might criticise those companies for apparent historical
underinvestment in their pension scheme, and you can debate whether
individual companies are reducing their deficits quickly enough.
But it does appear that the current boards of those companies
recognise the need to balance their – sometimes conflicting
– legal duties and to address both short and long-term
Arguably the same cannot necessarily be said of the boards of
the 12 companies whose pension deficits increased, but who
nonetheless paid generous dividends. Targeting those companies, and
pressing them to explain why they felt this was appropriate, might
be more productive than a broad brush condemnation of all
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An assignment of rights under a contract is normally restricted to the benefit of the contract. Where a party wishes to transfer both the benefit and burden of the contract this generally needs to be done by way of a novation.
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