Britain's under-funded pension schemes could cripple several of Britain's biggest companies and wreck prospects for economic recovery, a report today warns.
An analysis by accountancy firm PricewaterhouseCoopers reveals that companies' ability to support their huge pension liabilities remains mired at levels far below where they were before the recession.
It comes just days after a charity, People Can, which supports the homeless, victims of domestic abuse and ex-offenders, went bust as a result of crippling pension liabilities.
Although Britain's big companies aren't yet at that stage, PwC said a combination of low interest rates and investment returns together with high inflation means deficits won't improve without action from companies and trustees.
It warns that firms may have to inject substantial funds into their pensions, diverting them away from desperately needed business investment as the economy flatlines.
PwC's Pensions Support Index, which tracks the overall level of support provided to private sector defined benefit – or final salary – pension schemes now stands at 74 out of a possible 100. The Index had shown a steady improvement since its March 2009 low of 64, with the financial crisis still raging. But since the start of the year the number has been stalled at 74 and shows no signs of further improvement leaving it far below the 88 level achieved in early 2007.
With firms – which have now mostly forced staff to accept schemes where they bear the investment risk (known as "money purchase") – grappling with huge liabilities they are unlikely to risk taking part in such an experiment.
Jonathon Land, pensions credit advisory partner at PwC, said: "We are no longer in a standard economic cycle. We are living in a world of low interest rates and investment returns and relatively high inflation, meaning that without action, pension scheme liabilities are likely to remain at their present high levels."