Pension-fund socialism

In an earlier posting we looked at several examples where a pension scheme dominates the picture of the company's finances and value. A stark illustration of this lies in a revealing footnote in LCP's 2011 report on pension schemes amongst the FTSE-100 index of companies:

"Wolseley did not pay a dividend in 2010 or 2009 but contributed £42m to its pension scheme (2009: £47m). British Airways did not pay a dividend during its 2010 accounting year but contributed £364m to its pension scheme."
 

Lane, Clark and Peacock, Accounting for pensions 2011.

This situation is what Peter Drucker referred to as "pension-fund socialism".  This is where the bulk of the profits made by a notionally capitalist business end up going into the pension scheme for the benefit of employees:

"The "means of production" [...] is being run for the benefit of the country's employees. Profits increasingly become retirement pensions, that is, 'deferred compensation' of the employees."
 

Drucker, P. The Unseen Revolution, 1976

The shareholders of Wolseley and British Airways will likely agree with Drucker's assessment. However, at least those shareholders still own their business.  An even more dramatic example was provided earlier this year by the food-processing company Uniq:

"Under the terms of the restructuring [...] the Uniq Pension Scheme Trustee agreed to release the Company from its pension debt in exchange for a 90.2 per cent. shareholding in the Company and a cash payment to the Pension Scheme."
 

Uniq plc, Statement of 1st April 2011

In other words, the pension scheme's funding requirements were so large they took not just the business's profits, but 90% of the shareholder's assets as well.  A missed dividend pales into insignificance next to losing most of your shares.