FTSE 350 companies are increasingly unable to fulfill their defined benefit obligations, with an analysis by PricewaterhouseCoopers showing the overall level of employer support offered to pension funds is at its lowest level since 2009.
The firm's Pension Support index tracks the relationship between the financial strength of a company and the size of its DB commitments, and rates the overall level of employer support out of 100.
For the year ended Dec. 31, companies achieved an aggregate 69 out of 100, down from 82 the previous year.
The biggest pressure on company deficits is rising liabilities due to the fall in long-term gilt yields. Pension funds that have hedged interest rate risk were unable to cope with falling yields, said a news release accompanying the data.
"The last time we saw a fall this big was because of company performance, this time it's because of scheme size," said Jonathon Land, head of PwC's pensions credit advisory practice, in the release. "If a combination of political uncertainty following the election and Brexit leads to another economic jolt to company performance, this would be a double whammy for pension scheme support."
For those pension funds with weak employer support or that are more mature, the index "shows time is running out. Those schemes need to focus on the strength of their employer, the ability to make increased contributions and the risks attached to their investment strategy," added Mr. Land.
PwC bases financial strength of a company on net assets; operating profit; profit before tax; cash from operations; and market capitalization, vs. the company's estimated pension fund deficit.
