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Pensions regulator may block dividend payments

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10th Aug 2005
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Companies with high pension deficits may be prevented from paying dividends to shareholders, warns actuarial firm Lane Clark & Peacock (LCP).

In its 12th annual Accounting for Pensions Survey, LCP reported that the combined pensions deficits of FTSE 100 companies totalled £37 billion in July 2005. Despite this, the companies paid out a total of £39 billion in dividends to shareholders during 2004. Nearly half of the companies paid shareholder dividends that were higher than their pension deficits.

But rewarding shareholders at the expense of pension scheme members may be restricted by new regulations, warns the LCP report.

'Those companies with significant FRS17 deficits on their balance sheets may well find themselves restricted in terms of the dividends they are able to pay to shareholders and capital they can raise for refinancing," said Bob Scott, partner at LCP. 'Pension deficits will also play a significant role in M&A activity and are already curtailing potential deals."

Scheme funding requirements coming into effect in September will also give trustees greater powers to negotiate for higher contributions from companies. At current contribution levels, says LCP, it would take eight years for the £37 billion aggregate pensions deficit to be wiped out.

'New funding regulations will mean pressure for higher contributions will continue, which could lead to increasing conflict between trustees and the sponsoring company,' commented Chris Tavener, partner at LCP. 'Companies will need to balance the needs of their pension scheme members with the expectations of their shareholders."

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