Deepening pensions black hole 'will take 11 years to overcome'

Pensions watchdogs face being overwhelmed by pleas from cash-strapped companies for more time to pay off ballooning pension funding black holes, a study today warns.

The accountancy firm PricewaterhouseCoopers says the situation has deteriorated to such an alarming extent that the average time needed to fill a pension scheme's funding shortfall has soared to 11 years from just eight years a year ago.

Companies face a stark choice of pumping more cash into their pension schemes and accepting lower growth, or pleading with the Pensions Regulator for more time, the firm says.

PwC looked at 98 defined benefit pension schemes – which guarantee the pensions of members when they retire – for the research. More than 91 per cent of them had a funding deficit, or a mismatch between their assets and the liabilities they have to pay pensions for members.

More than half (57 per cent) also had a higher deficit than at their previous scheme valuation, despite their acting to increase their deficit repayment contributions.

The last time the situation was this bad was shortly after the financial crisis in 2009, when the average time needed to pay off deficits was calculated at nine years.

The crisis has been sparked by an unusual combination of low yields on government bonds due to quantitative easing from the Bank of England, eurozone difficulties and a torpid economy.

The situation is only likely to ease in the event of a return to more normal conditions in the economy, PwC warned. Pensions partner Jeremy May told The Independent: "This demonstrates the importance of getting the economy back on track. The best cure for Britain's pension funding shortfalls is economic growth."

Mr May added: "Many companies now face the stark choice of ploughing considerably more cash into their pension scheme, or being saddled with the debt for longer. In many cases, lack of cash availability means the decision is simple.

"Even if sponsors have access to cash, they are often choosing to reserve it to reinvest in their business and promote growth … rather than have it tied up in the pension scheme."

Mr May said the Pensions Regulator has shown willingness to listen to companies seeking longer to repay shortfalls, but that they would need to have "a clear justification to present".

The study also found that 79 per cent of pension sponsors with higher deficits had upped their pension contributions, whilst 43 per cent increased the length of recovery plans.