The ability of FTSE 350 companies to support their DB pension obligation is now, on average, only marginally better than at worst of the recession, a new PwC study has found.

The Pensions Support Index showed that 29 per cent of companies have a relatively large pension scheme in comparison to the size and profitability of their business, despite companies pouring billions of pounds into their pension schemes over the last few years. This is up from 18 per cent in the previous quarter and near the 31 per cent seen at the depths of the recession.

PwC pensions partner Jonathon Land said: “Until now, most commentary about the risk of DB schemes has focused on the size of the deficit. While this gives a snapshot of the state of a scheme at a particular point in time, it misses the critical issue of whether companies are able to support their scheme. This is comparable to commenting on the total value of UK mortgages, without understanding the value of the houses they are secured against and the ability of a person to repay their mortgage.

“While there is clearly a lot of variability across individual cases, another round of quantitative easing and the continuing economic uncertainty means historical pension liabilities look set to continue to be a significant drag on some FTSE 350 companies unless action is taken.”

PwC believes that companies at the lowest end may need to enter into discussions with their schemes and in some cases consider a restructuring, while companies at the high end should articulate their strength to trustees as this could help free up cash to be invested in the business.

PwC pensions partner and actuary Jeremy May said: “There are things that companies can do to improve their position, including using contingent assets rather than cash contributions, liability management exercises and using buyout mechanisms. The message for companies or trustees with relatively large DB schemes is to ensure you understand your position and act now or risk these deficits growing further.”

The index tracks the overall level of support provided to DB schemes out of a possible score of 100 and revealed that companies’ ability to support their pension obligations has been worsening since March 2011. Previously the index had shown an improvement from 64 in December 2008 to 80 in March 2011.

However, the triple whammy of quantitative easing, the ongoing eurozone crisis and the prolonged recession has led to the index dropping to 63, 25 points lower than the index’s high of 88 in June 2007.

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