UK-listed companies with a Defined Benefit (DB) pension scheme issued 81 profit warnings in 2024, the highest annual volume since the pandemic in 2020 (249 warnings), according to EY-Parthenon’s latest Profit Warnings report. In total, nearly one-in-four (24%) UK-listed firms with DB sponsors issued a profit warning last year.

The number of warnings issued by UK-listed companies with a DB pension scheme in 2024 made up almost a third (30%) of the 274 total from all UK-listed companies – the highest annual proportion since 2020 (43%).

Highest quarterly volume of warnings since same period of 2020

In the final quarter of 2024, 28 profit warnings were issued by UK-listed companies with a DB pension scheme, a year-on-year increase of six warnings and the highest quarterly total since Q4 2020.

UK-listed Household Goods and Home Construction firms behind the most warnings, with contract issues the leading cause

Companies with a DB pension scheme in the FTSE Household Goods and Home Construction sector issued the highest volume of warnings during 2024 (15), followed by FTSE Industrial Support Services (12) and FTSE Retailers (seven).

Rising costs (28%), contract issues and spending delays (26%) and credit tightening (11%) were cited as the main reasons for warnings from UK-listed companies with a DB pension scheme.

Karina Brookes, UK Pensions Covenant Advisory Leader and EY-Parthenon Partner, said: “The latest profit warnings data demonstrates the ongoing impact of external challenges such as global geopolitical uncertainty and policy upheaval on companies’ forecasting abilities. In this environment, strategies for companies with a DB sponsor need to respond to both short-term policy changes and deeper structural issues, whilst being mindful of the changing pensions regulation including the new DB Funding Code."

“All valuations from September 2024 will now fall under the new code, which emphasises the importance of covenant and the requirement to fund the scheme as soon as cash flows allow. For companies that are issuing a profit warning, there is a delicate balance between investing cash back into the business to improve longer term prospects and, if it is needed, using the cash available to fund the scheme in accordance with the guidance."

“At the same time, companies issuing profit warnings that have well-funded schemes may consider whether they are able to use scheme surpluses as a source of cash support, provided there is the right support structure and agreement with the trustees in place to extract the surplus.”

Paul Kitson, UK Pensions Consulting Leader at EY, added: “While average DB funding remained robust throughout 2024, the high number of profit warnings from listed UK firms with a DB pension scheme suggests not all schemes are out of the woods yet. At the same time, many trustees and companies are still digesting the Government’s recent surplus return proposals, so balancing the funding level, covenant strength and potential use of surplus will be a delicate balance."

"As ever, it is critical for both trustees and companies to work together to understand their scheme, its employer covenant, and their best path forward – whether that be aiming to run-on with additional contributions, run-on with surplus release, or buy-out.”