Companies face £100bn pension top-up

The cost of plugging soaring pension deficits threatens to eat up as much 13pc of companies’ total £750bn of cash balances, diverting money away from vital investment in jobs and growth, Pension Corporation warned. The extra funding is needed despite £80bn of deficit reduction payments made by business in the past three years.

The Bank of England’s £325bn quantitative easing (QE) programme has been blamed for causing the shortfall, by forcing down gilt yields and making it more expensive to buy annuities. Pension Corporation has estimated that QE added as much as £74bn to pension deficits reports The Telegraph.

Britain’s safe haven status has added to the problem because strong demand for gilts has also pushed down yields. “UK plc has been swimming hard upstream, with lots of effort being expended, but not making any real progress against the powerful deficit current,” said Pension Corporation, a risk management specialist.

It also warned that soaring deficits could force more final salary pension schemes to close. “Trustees with open schemes remain fearful that even these will be closed to future accrual because of the ever increasing burden placed on companies,” it said.

Only 16pc of UK final salary pension schemes in the private sector remain open to new members, according to the Pension Protection Fund, while 24 per cent have been closed to future accrual for existing members. The decline in pension provision has accelerated rapidly since 2006, when 43 per cent of schemes were open to new members and just 12 per cent were closed to future accrual. The vast majority of open final salary pension schemes are in the public sector.