A rapid recovery in UK dividends could be derailed by new rules governing how UK companies manage their cash flow liabilities, actuary Lane Clark & Peacock has warned. UK dividends have jumped 61% this year from the 2020 low with £19bn paid out in the second quarter, according to the Janus Henderson dividend monitor, repairing much of the damage inflicted by last year’s crash. Pay-outs had been held, increased or reinstated by 85% of UK companies, with the return of the banking sector to the dividend register in particular driving a big annual bounce. That momentum could be in jeopardy as the Pension Schemes Act 2021, which was designed to tackle some of the vulnerabilities exposed by the collapse of Carillion and BHS among others, comes into force in October, however. All businesses which operate historical defined benefit schemes will be now face legal liabilities if they prioritise payments which could lead to a ‘material reduction’ in the amount left over to cover pension liabilities in case of insolvency. Experts believe it may be challenging for company directors to understand where the new boundaries lie. At the very least, company boards will have to think much more carefully when setting their dividends about the impact on the position of their pension scheme, whilst schemes will be in a stronger position to press for greater security if a large dividend payment goes ahead. The issue, and its potential burden on the regulator and taxpayers, has been put under intense scrutiny by a series of high-profile scandals in recent years. In 2017, The Pension Regulator ruled that the decision by Sir Philip Green (pictured) to sell BHS to a former bankrupt with no experience of retail for £1 was primarily motivated by a desire to avoid the company’s pension liabilities After the business collapsed with a £571m hole in its pension scheme, Green was forced to step in and fund it with a £373m bailout.

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