Sponsors face increasing pension contributions by half or paying in for an extra four years to meet worsening deficits, according to new analysis by Hymans Robertson.

The consultant warns that the average deficit in FTSE 350 companies valued this year has increased by 70 per cent since the last valuation in 2010. Despite asset growth of 30 per cent over the period, liabilities up by a quarter have pushed the average deficit from £170m to £290m. The average defined benefit pension scheme has seen its funding level fall from 78 per cent to 73 per cent.

Hymans Robertson partner Patrick Bloomfield said: “Liability valuations have been driven up by record low gilts yields, which is a consequence of the Bank of England's QE and the Eurozone’s economic difficulties. This has been exacerbated by the continued evidence that people are living longer, making pension promises more expensive to deliver.”

According to Hymans, schemes have between 15 and 20 years to strengthen their funding positions. After that they will need to sell significant assets each year to pay pensions.

The result is that sponsors will need to pay contributions at the current rate for an additional four years or increase contributions by about 50 per cent. For the average pension scheme of a FTSE 350 company, it could mean increasing pension contributions from £13m a year to £20m a year.

“We expect to see pressure from the Pensions Regulator for companies to increase the cash they pay to their pensions schemes,” Bloomfield said. “However, many businesses will find other ways to solve their pension problems, like ring-fencing company assets using asset backed funding arrangements.”

Companies and pension scheme trustees must work together to tackle the issue, he added.

“Companies who put off tackling their pension problems in 2013 may find the costs of getting back on track in the coming years more than they can afford. This risks the future of the businesses, as well as risking the pensions promised to their employees.”

About a third of the UK’s 6,400 private sector defined benefit pension schemes have their triennial valuation cycle falling in 2013

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