Final salary costs per employee are more than 100% higher than FTSE350 companies
40% of European companies have a surplus compared to 29% of the FTSE350
UK final salary schemes continue to dominate global pension obligations for European head-quartered multinationals
European companies are paying over two times more per employee per year towards deficits at £5,700, compared to £2,400 per employee per year for the FTSE350. If they carried on paying deficit contributions at this rate the average European company in the survey would be expected to clear their accounting deficit in about 6 years, nearly a year ahead of the FTSE350. In addition to this, the cost of final salary schemes as a proportion of total staff costs is also higher at 14.9% compared to 6% for the FTSE350.
Whilst the average funding level (as measured on an accounting basis at the end of 2015) for this cohort of companies is similar to the FTSE350 – 97% vs 95% respectively – more European companies are in surplus. Within the survey group, 40% of companies have a scheme in surplus, something that is a less common sight within the FTSE350 with only 29% in this position.
The research also examines how UK pension contributions stack up globally. While UK subsidiaries only contribute 6% of global revenue, they account for 30% of global DB pension obligations. Contributions per employee are over three times higher in the UK compared to the global picture (£9,500 vs £3,000).
Andrew Vaughan, Partner at Barnett Waddingham, commented: “These figures raise an interesting question as to why are European companies with UK final salary pensions paying proportionately more than their UK counterparts to fund deficits? One possible explanation is that European head-quartered companies have tended to adopt a more cautious approach globally to managing their pension obligations. It will be interesting to see how this pans out post Brexit.
“Given the outsized impact of UK DB pension obligations on their balance sheet, many of the constituents in our research are clearly comfortable funding UK pensions at a quicker rate as it allows them to de-risk at a faster pace and means they should be free from the deficit burden sooner.”
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