Even a trebling of company contributions compared to the level seen in 2007 will be insufficient in preventing the average recovery plan of a FTSE350 defined benefit pension scheme extending beyond 15 years.

Financial uncertainty has been rife among FTSE350 pension schemes with funding levels on a company accounting basis ranging from 78 per cent to 104 per cent over the last 15 months, says Mercer.

The financial consultant says deficits now stand at £61bn, and funding levels at 85 per cent.

In its Quarterly Pension Deficit Survey, Mercer has also found that deficits on the scheme-funding basis used to determine company contribution levels are likely to be bigger than those shown in companies' accounts. The median deficit of FTSE350 companies stands at £225million, a huge jump from 31 March 2007's £40million.

"The decline in funding levels is likely to prompt trustees to issue demands for increased funding at a time when resources are scarce," said Matt Collinson, leader of the integrated retirement financial management group at Mercer. "Fortunately, the Pensions Regulator has indicated that trustees may be sympathetic to company requests to pay lower contributions, where it is clear that higher contributions are not affordable."

Collinson added that the trebling of company contributions is not necessarily an option: "Given the Regulator's stated desire to reduce the length of recovery plans, something has got to give. The Regulator has acknowledged that it expects the trend towards shorter recovery plans to slow down, but we believe that it might have to reverse to avoid contributions having to increase significantly, to the possible detriment of companies' financial stability."

He said that this should push the strength of the sponsoring employer to the top of trustees' agendas, as they are walking "a tight-rope of trying to obtain additional funds to increase security for scheme members, while at the same time not putting too much pressure on the company and damaging its financial strength and future prospects."

- Pensions Age May 2009

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