James Moore: We're staring into an ever-deeper pension hole

Is the word "pension" inextricably linked to bad news? It really is hard to draw any other conclusion from the industry chatter, the latest bit of which came out yesterday. According to the pension consultant William Mercer, the combined funding black hole of schemes run by Britain's 350 biggest companies has increased by £17bn over the year to the end of March, despite those companies making £20bn of contributions.

Oh dear. Those headlines make it look like the money is going into a bottomless pit. What the raw numbers don't do, however, is explain the context.

Part of the problem is that in combining the pension schemes of all 350 companies in the FTSE 350 index you end up with a truly vast number. So vast that relatively small shifts in the combined value of the schemes' assets or their liabilities can still produce very big numbers on their own.

The £17bn that Mercer talks about is actually a rather small percentage of the total (but isn't half useful for touting for business).

But those involved with company pension schemes are still tearing their hair out because they say it will get worse. Government bonds, or gilts, are very important to pension schemes, and with the Bank of England buying so many of those up as a way of stimulating the economy, the returns they provide are pitiful. Bad news for pension funds, great news for finance directors.

Never have they had such a benign climate for raising cash on the bond markets. High-quality corporate bonds yield only a fraction more than gilts, so it's a great time to raise money to build up a war chest for a deal or two, or even for doing unfashionable things like investing in the business.

You might think it would also be a great time for finance directors to look at dealing once and for all with their pesky pension funds. Even if the benign financial climate doesn't persuade companies to pay in more (admittedly the economic climate isn't so cheery) there are things that can be done to better match scheme assets with long-term liabilities, in lieu of dumping them off on the Government, à la Royal Mail.

The problem is that doing this tends to be complex, expensive and a bit dull. It certainly doesn't buy much credit from City analysts compared with the red meat of, say, another interminable cost-cutting drive.

So we'll be seeing scary numbers like Mercer's for sometime to come. And the firm won't be short of work, given that standard practice in the FTSE 350 these days is not to do any work which you could pay a consultant vast amounts to do for you.

Another great idea for other people's money: a politician eyeing a big unclaimed pot of cash which isn't his for a pet project. Plus ça change?