The ability of FTSE 350 companies to meet their defined benefit pension promises has fallen to its lowest level since the recession, PwC has found.

According to PwC’s Pension Support Index, despite growth in the FTSE, the relative support companies provide to their pension schemes has deteriorated.

The Index, which tracks the relationship between the financial strength of FTSE 350 companies and the size of their DB pension scheme commitments and rating overall level of employer support, recorded a total score of 69 out of 100 this year, down from 82 the previous year. This score is the lowest since 2009.

PwC’s findings highlighted that the biggest pressure on company deficits is rising liabilities as a result of the fall in long-term gilt yields.

The Pensions Regulator confirmed the stress on DB pensions, estimating that five per cent of schemes in this valuation cycle are at risk of, or are already failing to meet their pension obligations.

PwC head of pensions credit advisory practice Jonathon Land, said: “This year’s index score is the largest drop since the recession. The last time we saw a fall this big was because of company performance, this time it’s because of scheme size. If a combination of political uncertainty following the election and Brexit leads to another economic jolt to company performance, this would be a double-whammy for pension scheme support.

“If you have a strong covenant with an immature scheme you can afford to wait for rates to rise. For many, with either a weak covenant or a relatively mature scheme, our Pensions Support Index shows time is running out. These schemes need to focus on the strength of their employer, the ability to make increased contributions and the risks attached to their investment strategy.”

PwC pensions investment partner Sinead Leahy, commented: “In this low yield environment, pension funds need to review their investment strategy. Having a focus on cash flow matching assets which have good returns can both help to reduce risk, by providing a better match for Scheme liabilities, and repair deficits."

PwC senior economic adviser Andrew Sentance, added: “In some advanced economies, interest rates are already starting to increase, led by the US Federal Reserve. In the UK however, concerns over Brexit are likely to lead to the current low interest rate environment remaining lower for longer. This will continue to impact schemes in the short to medium term.”

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