Defined benefit pension fund trustees could be provided with more than £100bn in deficit reduction payments over the next three years, or 13 per cent of cash holdings, a new survey by Pension Corporation has revealed.

The future of Pension Schemes 2012, which was conducted from January to March among more than 170 trustees and pension professionals, also found that 37 per cent of trustees hope to negotiate increases in sponsor contributions, with a total of 20 per cent seeking increased payments of more than 10 per cent. An additional 46 per cent of trustees expect funding levels to be lower than at the last valuation.

As a result of these findings, the absolute necessity to address pension scheme risk has been emphasised. Up till now employer contributions have predominantly been used to compensate for further underperformance of assets against liabilities, rather than focusing on deficit reduction. Pressure on sponsors is therefore expected to increase.

In addition, the survey revealed that even though trustees are aware of the effects of market volatility, they remain under-hedged against longevity, investment and inflation risk. Furthermore, there are concerns over the levels of communication between trustees and members, with trustees stating that this area needs to improve significantly to ensure that members receive what they expect at retirement.

Pension Corporation co-head of business origination David Collinson said: “Excessive costs caused by too much misguided legislation, poor matching of investment and liabilities and the overall economic environment have combined to create a perfect storm which will very likely wash away benefits from a significant minority of members of defined benefit pension funds."

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