The combined shortfall of the UK private sector's defined benefit schemes stands at around £900bn, up from £250bn at the start of the millennium, despite millions of pounds being poured into them to plug the gap.
“For any company sponsoring a defined benefit scheme the numbers are stark: £500bn of payments made, only for the deficit to have tripled 15 years later," said Jon Hatchett, a partner at consultancy Hymans Robertson, which conducted the research.
"Finance Directors and shareholders will be scratching their heads wondering how this has come to pass. For too long schemes have been taking more risk than they need to. The result is a large and expanding bill seemingly stretching forever into the future."
Three reasons are to blame, according to Hatchett - equities are at half the level expected in 2000, interest rates have increased liabilities by over 50 per cent, and a continued rises in longevity have added a further 10 to 15 per cent to liabilities.
The consultancy has warned against rushing into riskier investments to reduce the deficit despite the figures ballooning.
“The main challenge for schemes now is paying out pensions to retiring members for decades to come. The situation requires a different approach: slower deficit reduction, taking no more risk than is needed and investing in assets that deliver the income needed to pay today and tomorrow’s pensioners. This is a long-term game.
“Go too far though and over-caution will get the better of schemes when the economy normalises. Schemes are sitting on a record £1.3tn of assets at present. Investing to protect this – and its ability to pay retirees’ pensions – is critical, but an overly conservative approach will cause damage too.”