Weekly media briefing 29 July 2021

This week’s topics:

• Pension Funding Index - July marks sixth month of DB pension schemes being in aggregate surplus
• How have FTSE350 companies explained the severity of the impact of the pandemic?
• Birmingham on track to deliver first net zero Commonwealth Games
• What gender pay gap reporting for the retail and hospitality industry in 2020/21 is telling us about the impact of Covid-19

Funding position for UK defined benefit pension schemes resilient despite increased market volatility, according to PwC analysis

• The funding status for the UK’s 5,300 corporate defined benefit (DB) pension schemes remains in a surplus position in July, in spite of increased market volatility, according to the PwC Pension Funding Index.
• This now makes for six months of aggregate surplus for the UKs DB scheme universe.
• Liability values increased by £80bn over July, driven by falling gilt yields. Asset values have also increased to offset some of this, and as a result the overall funding position continues to show a surplus of £10bn based on schemes’ own measures.
• PwC’s Adjusted Funding Index showed a £190bn surplus. The Adjusted Funding Index incorporates strategic changes available for most pension funds, including a move away from low-yielding gilt investments to higher-return, income-generating assets. It also uses a different, more realistic approach for the longevity assumption.

Raj Mody, partner and global head of pensions at PwC, says:

• It might sound easier for schemes to leave the longevity assumption unchanged at their next valuation, but it could do more harm than good. Keeping the same longevity assumption would mean not taking into account the latest data.
• It is better for schemes to reassess their longevity assumptions based on the latest evidence available - modern analytical tools and techniques allow this.
• The risk with just sticking with old forecasts is that it could require excess money being paid irreversibly into schemes in the short term, to fund prospective life expectancy improvements which are decades out and may not even happen.
• This might be appropriate for some schemes, but it’s unlikely to be right for the majority.

How well have major companies explained the impact of the pandemic on their businesses? PwC’s Annual Review of Reporting Practices in the FTSE350 provides some insight:

• 83% of companies referred to Covid-19 in their going concern disclosures.
• 52% included stress testing, with 22% quantifying the stress tests to some extent.
• But only 40% included any other forward-looking information and only 11% acknowledged how the pandemic has impacted their strategy.
• Covid-19 increased demands on governance with an average of 11 board meetings per company and as many as 48.
• Only a third of companies gave any significant insight into the impact of the pandemic on directors’ commitments.

Mark O’Sullivan, Head of Corporate Reporting at PwC UK, comments:

● Covid-19 has had a significant impact on companies’ governance activities. Boards often met more regularly - as many as 48 times - and annual reports referred to Covid-19 in many places, yet it was often difficult to get a proper overview.
● More than half (52%) of reports did not have a disclosure that brought together the multiple impacts and subsequent responses to the pandemic.
● Few Boards really captured the practical difficulties of working remotely, sometimes with people they had never met or with people who had never visited the company’s sites.
● Where we saw disclosures, they focused mostly on how well the interests of employees - and sometimes customers and suppliers - had been considered in the early stages of the pandemic. Difficult decisions were being made, but very limited insight has been given into the balance that was struck.
● Tough decisions continue to be made and will need to be in the future too. The context and rationale for Board judgements need to be understood, along with the impact on the core financial strategy and longer-term business model.
● Companies can do more to explain the importance of the information they provide. A consistent theme of our review is the need to explain why an issue is not seen as particularly significant or material. This is as relevant to ESG and climate change reporting as it is to Covid-19-related reporting.

Birmingham on track to deliver the most diverse and first net zero Commonwealth Games and opportunities for all

While our British Athletes make their mark in the medals league table in Tokyo, it’s one year to go until Birmingham hosts the 2022 Commonwealth Games. Matthew Hammond, PwC’s Midlands Region Leader & Birmingham Senior Partner, reflects on the transformation of a city and region on the up:

• Hosting the Commonwealth Games will bring opportunities to accelerate the redefinition and contribution of the West Midlands on the national and international stage.
• The region is already a key engine of the UK economy, sustaining the top FDI performance of UK regions outside London over the last five years. The Government believes the Games can attract £650m of additional investment into the UK, boost exports and increase direct visitor spend.
• Birmingham is now the largest professional services hub outside London, has attracted financial services giants such as HSBC, Deutsche Bank and Goldman Sachs, and the West Midlands region fostered 19,000 start-ups in 2019.
• Underlining the transformation from its industrial heritage and its diverse culture, Birmingham is on course to deliver the first Net Zero games and Birmingham 2022 will also be the first games at which the ParaSport programme is fully integrated into the main programme.
• The Commonwealth Games will create around 35,000 new jobs and skills opportunities in the region, plus a fully trained volunteer workforce of 13,000. To maximise the long-term impact, the focus will be on supporting young people, particularly those from disadvantaged groups, the unemployed and disabled individuals.
• As a sponsor to the Games, PwC’s focus will be on social mobility - assisting in the selection of volunteers from diverse backgrounds and their skills development - and technology skills development - working with local and national third sector organisations to deliver programmes that benefit the next generation of the workforce.

The story so far: a tale of two industries - gender pay gap reporting in the retail sector and in the Hospitality, Travel and Leisure sector for 2020/21

• 32% of companies across all sectors had reported their gender pay gaps as at 31 May 2021. Reporting within the retail sector was slightly higher than the wider market, at 36%. However, reporting within the Hospitality, Travel and Leisure (“HTL”) sector was significantly below this, at 19%. To a large extent, this reflects the impact of COVID-19 on HTL businesses.

Based on the limited group who had reported by 31 May 2021, PwC UK’s latest reports in collaboration with WiHTL (Diversity in Hospitality, Travel and Leisure) and Diversity in Retail, observed the following trends:

• Low pay gaps in the retail sector. The retail sector has consistently had some of the lowest pay gaps within the market. This is primarily driven by the large workforces of many retailers and similarities in pay levels for the (prevalent) junior roles, which are often well balanced between men and women. Stable median pay gaps - median pay gaps represent the gap between the “middle” male and female employees in an organisation. For many retailers, over 50% of staff are in “shop floor” or distribution roles and median gaps may illustrate the difference between these roles.
• A different story emerges in the gender pay gap data submitted so far by the HTL sector. It shows a lack of progress in the figures. While average mean and median pay gaps in the wider market fell in 2020/21, the limited number of companies who reported consistently in HTL saw an increase for the first time in 3 years. This could be reflecting limited movement in the most senior and junior roles. The pay gaps continue to reflect the fact that across HTL sector there are far more men than women in the best paid senior positions and technical roles and far more women in lower paid jobs.

Alastair Woods, a human resource consulting partner at PwC UK, says:

• It’s important to remember that reporting deadlines were extended this year, the gender pay gap data and the story it tells may change by the October reporting deadline.
• However, these emerging trends show the diverging way different industries - and people - may have been impacted by Covid.
• Once pandemic-related challenges abate, there will be a heightened focus on the Environmental, Social and Governance agenda.
• In this context we expect Inclusion and Diversity to have renewed focus from many employers - and the gender pay gap is still currently the key litmus test of progress.

Tea Colaianni, Founder & Chair, WiHTL and Diversity in Retail, comments:

• It is crucially important to continue to focus on transparency, reporting and meaningful action to address some of the inequalities that existed prior to the pandemic and have been exacerbated since.
• Every step, however small, can contribute to making a significant difference in closing pay inequalities and advancing the broader diversity and inclusion agenda in HTL and retail."

Our new report, Every step can make a difference: Closing the gender pay gap in Hospitality, Travel and Leisure, has been created in collaboration with WiHTL (Diversity in Hospitality, Travel and Leisure). And our report, Gender pay gap reporting in the retail industry 2020/21, has been created in collaboration with Diversity in Retail.

Something to listen to:

How can businesses convert purpose to impact? In this episode of PwC’s Business in Focus podcast, James Rutter, CCO at COOK, tells his story and shares practical advice on putting purpose into action.

Something to watch:

With less than 100 days until the all important COP26 climate summit, climate activity is ramping up as businesses, cities, councils and countries come together in the race to NetZero. Hear from our chairman and senior partner, Kevin Ellis, and our climate experts as they look ahead to what needs to be achieved. https://bit.ly/3x96SPh

Something to read:

From ethically made socks for frontline workers and a start-up school for the over 50s, to a renewable energy company with ‘Double Unicorn’ status and Liverpool’s first underground vertical farm, Business at its Best exists to tell stories of UK businesses making a positive difference. This week, the programme celebrates its six months anniversary. Read the stories and find out more about this partnership between the CBI, Federated Hermes, The Inclusive Economy Partnership, PwC, ReGenerate, and The School for Social Entrepreneurs on LinkedIn.