Warning as pension pot deficits rise
The gaping hole in defined benefit (DB) pension schemes has widened from £425billion to £800billion since 2006, amid lower expectations on future investment returns and people living longer, a report said.
The study by JLT Employee Benefits found that the pension deficit had ballooned despite employers pumping in contributions worth £160billion.
It found that each final salary policy could see a gap of as much as £73,000.
The study predicts that the total actual cash flow schemes will have to pay out could reach £3.6trillion.
And, if low interest rates remain, then companies will have to stump up £220billion in extra contributions over the next decade to reach the deficit levels of 2006, the report said.
It comes as financial markets have become increasingly volatile in recent months amid falling commodity prices, low interest rates and a slowdown in economic growth in China.
Financial stocks have also come under fire amid concerns from investors that they are not holding enough capital to withstand an economic shock on a par with the banking crisis of 2008.
Murray Wright, actuary and consultant at pension consultants JLT, said pension schemes cannot follow the same strategies they have used over the past 10 years.
He said: “Our analysis highlights that DB pension schemes across the UK should take a serious look at how they plan to close deficits.
“There is a £2.3trillion cash flow shortfall that needs to be met by a combination of contributions from sponsors and furture investment returns.
“Trustees and employers should ensure they are using all of the levers available to them to stop pension shortfalls spiralling out of control.”