LONDON (Reuters) - British listed companies’ ability to meet the obligations of their defined benefit, or final salary, pension schemes is at its weakest since 2009 as a result of falling gilt yields, consultancy firm PwC said on Monday.
Low interest rates have increased the gap between pension schemes’ assets, typically held in UK government bonds, and the fixed sums they need to pay to pensioners.
Large pension deficits can reduce companies’ ability to pay dividends as they divert cash into the pension schemes and can crimp merger activity.
“The biggest pressure on company deficits is rising liabilities as a result of the fall in long-term gilt yields,” PwC said in a report.
PwC's Pensions Support Index, which tracks the financial strength of FTSE 350 companies .FTSE .FTMC against the size of their pension scheme commitments, dropped to a score of 69 out of 100, its lowest since 2009 and down 13 points from 2016.
The weakest pension schemes need to focus on “the strength of their employer, the ability to make increased contributions and the risks attached to their investment strategy”, Jonathon Land, head of PwC’s pensions credit advisory practice, said.
Reporting by Carolyn Cohn; Editing by Elaine Hardcastle