A stakeholder versus shareholder dilemma

Here’s an interesting question for the Board of Directors of larger companies…

Should a company make dividend payments to shareholders at the same time as reducing or curtailing payments to the company pension scheme?

This BBC article examines the issues.

According to the UK pensions regulator, the latest estimate of total company pension deficits is £191bn. In other words, the existing funds (investments, cash etc) to pay future pension requirements is short by a little way! Most of the shortfall will have arisen because of the substantial fall in value of quoted investments over the last 18 months. Nevertheless, at some stage the companies operating final salary schemes may need to make up that shortfall, which is the last thing you want to do as a Board at a time when cash is king.

Pension scheme payments stretch far into the future. Whereas shareholders require a more short-term reward. Dividend payments are just one, but an important part, of the total shareholder return.

So should shareholders be paid out when the pension scheme is, in effect, an unsecured creditor of the business?