Pensions Regulator tells companies to prioritise pensions payments over shareholder dividends

The Pensions Regulator has said employers who are unable to fill funding gaps in their pensions schemes should stop paying dividends to shareholders, amid concerned companies are prioritising shareholders at the expense of pension payments.

The regulator said on Tuesday it was “concerned about the disparity between dividend growth and stable deficit repair contributions (DRC)”.

“Recent corporate failures have highlighted the risk of long recovery plans while payments to shareholders are excessive relative to DRCs.”

The regulator said those employers should prioritise payments to the pension scheme.

“As the pension scheme is a key financial stakeholder, we expect to see it treated equitably with other stakeholders,” it said.

It also said it had contacted more pension schemes where it was concerned about “inequitable treatment” in 2018.

Tom Selby, analyst at AJ Bell, said: “The Pensions Regulator has clearly got its sights set on companies who flagrantly ignore their responsibilities to pension scheme members in favour of rewarding shareholders.

“The regulator’s approach is one of hard-nosed pragmatism. While understandably it wants deficits to be plugged as soon as is possible, coming down like a tonne of bricks on strong companies by restricting their ability to reward shareholders would risk strangling economic growth.”