Dividend payments threatened by new pension rules
New rules could force blue-chip companies to allocate spare funds to pension schemes instead of increasing dividend payments after the pandemic.
Actuarial firm LCP warned that companies should not underestimate the significance of the new Pension Schemes Act 2021, speaking to The Times.
The fresh legislation was drawn up to avoid situations like the Carillion collapse, where the construction firm had been allowed to pay dividends while its pension schemes were in serious deficit.
Company directors could be personally liable and even face up to seven years in prison, making it increasingly important for directors to understand the new boundaries.
There may be more frequent regulatory intervention from The Pensions Regulator when new powers come into force on October 1.
Companies may have to reconsider large dividend increases or paying dividends at all, according to Laura Amin, a principal at LCP.
We could see the 2021 ‘dividend bubble’ burst in a matter of weeks,” she said.
“The new law doesn’t ban dividends, but we think it could well change corporate behaviour.”
LCP estimates that 25 to 30 FTSE 100 companies had deficits by the buyout measure and paid dividends last year.