In the U.K., which Mercer says is the European country with the most pension assets, the problem has already weighed on the share prices of companies with large retirement plans, including BT Group Plc and Tesco Plc. Carclo Plc, a maker of plastic components for technical and consumer products, said it’s unlikely to pay a planned dividend next month, projecting a “significant increase” in its pension deficit unless corporate bond yields recover by the end of September.
Greater risks from uncovered pension liabilities require supervisory attention where profitability and capital levels are in jeopardy, the Joint Committee of the European Supervisory Authorities said in a Sept. 7 release. The report showed that defined-benefit pension plans across the European Union were on average only 75 percent covered by assets at the end of 2014. According to Bloomberg Intelligence, many schemes will likely have deteriorated since then.
“There is more than circumstantial evidence that this is becoming an issue with a series of companies in Europe,” according to Citigroup’s Altmann. “Their propensity to grow the dividend will be somewhat limited, and they’ll struggle to generate surplus cash, both of which have been favored strategies among investors in recent years.”
This story was provided by Bloomberg News.