Are Pension Contributions a Threat to Shareholder Payouts?

46 Pages Posted: 17 Nov 2017 Last revised: 15 Feb 2019

See all articles by Seth Armitage

Seth Armitage

University of Edinburgh - Accounting and Finance

Ronan Gallagher

University of Edinburgh - Edinburgh Business School

Date Written: February 1, 2019

Abstract

UK companies have been making large contributions to reduce the deficits of their pension funds, and are believed to fund such contributions in part by reducing dividends. Using data from 2003-16, we find little evidence that large deficit-reduction contributions are associated with reductions in regular dividends, though we find some restraint in dividend increases and total payout. Most companies make large contributions when they have healthy cash flows and strong profitability, or inflows from disposals of assets. This suggests that the Pensions Regulator allows companies flexibility regarding the timing of contributions.

Keywords: Defined Benefit, Pension Deficit, Contributions, Dividend Policy, Payout Policy

JEL Classification: G35, J32, G31

Suggested Citation

Armitage, Seth and Gallagher, Ronan, Are Pension Contributions a Threat to Shareholder Payouts? (February 1, 2019). Available at SSRN: https://ssrn.com/abstract=3071842 or http://dx.doi.org/10.2139/ssrn.3071842

Seth Armitage

University of Edinburgh - Accounting and Finance ( email )

29 Buccleuch Place
Edinburgh, EH8 9JS
United Kingdom
44 131 650 3794 (Phone)

Ronan Gallagher (Contact Author)

University of Edinburgh - Edinburgh Business School ( email )

29 Buccleuch Pl
Edinburgh, Scotland EH8 9JS
United Kingdom

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