FTSE 350 could take £2bn profit hit from pension costs

UK-Currency-Money-Coin-Pounds-GBP-700x450Record low bond yields are due to see the cost of new defined benefit pensions for FTSE 350 firms rise £2bn between 2015 and 2017, according to a Mercer’s survey.

The latest Mercer’s Pensions Risk Survey found that profits at FTSE 350 firms could shrink by £2bn.

Servicing defined benefit schemes cost FTSE 350 firms approximately £7.5bn in 2015, the Mercer analysis says, while it projects the cost to reach £10.8bn in 2017.

Mercer UK head of pension accounting Warren Singer says: “The impact of over £2 billion on profits is material compared with pre-tax profits of FTSE 350 companies of £84bn in 2015.

“Brexit has introduced considerable uncertainty on how profit will be impacted by DB pension plans after 2017.

“Our analysis of current low bond yields shows that new DB pension savings now typically have an accounting cost about four times higher than the cost of defined contribution retirement savings.”

In August, AA corporate bond yields fell to a record low of 1.9 per cent per annum compared with 3.7 per cent per annum at the end of 2015.