61% of DB scheme firms have issued a profit warning in 2020, EY finds

Almost two thirds of listed companies with defined benefit (DB) schemes issued 228 profits warnings in the first nine months of 2020, according to EY’s quarterly analysis of UK profit warnings.

This constitutes 44% of the total 524 profit warnings issued during the same period, with the number reaching a new annual high with more expected due to continued market uncertainty.

According to EY, listed DB scheme sponsors issued 32 profit warnings in the third quarter of this year, being 55% of the total 58 profit warnings issued over the three-month period.

Karina Brookes, EY UK’s pensions covenant advisory leader, said: “Scheme sponsors are clearly facing significant market challenges. Many impacted businesses are being forced to double down on cash conservation and re-financing efforts, and requests for contribution deferrals to schemes have increased during COVID-19, especially within certain sectors.

“At a time of change within the regulatory regime for DB scheme funding including an increased focus on the role of covenant, headlined by The Pensions Regulator’s new DB funding code and the recent publication of guidance for trustees around the superfund regime, the pensions industry is working together to secure members’ benefits.”

She added: “The headwinds facing the sectors where DB schemes are commonly found are acute, and the response from scheme stakeholders must be robust and innovative. 

“In response we expect to see an uptick in covenant-led decision making, as trustees look to improve their pension scheme’s resilience in these uncertain economic times.”