Trustees set to demand higher contributions from companies

The accounting firm said declining market conditions and recent regulatory guidance on mortality assumptions were likely to prompt trustees into seeking greater contributions from sponsoring employers in a bid to safeguard members’ benefits.

But KPMG warned that using discretionary cash to pay off pension scheme deficits may not be the best option during a downturn.

KPMG pensions partner Mike Smedley said: "We are heading for a pensions crunch as nervous trustees demand more cash from companies just as those companies have less of it."

Smedley said these demands stemmed from growing uncertainty in the UK’s economy.

He said the firm’s pensions repayment monitor survey showed that 60pc of FSTE 100 companies were already paying more into their schemes than was needed to clear deficits within a 10 year period.

Smedley said: "At a time when cash is plentiful, using it to clear debt can be a very good idea – similar to a householder flush with cash deciding to pay off a mortgage early – but as the credit squeeze tightens, financial obligations need to be prioritised and if pensions can be met over a longer time period, that can reduce the demand for cash outgoings today.

"This flexibility ought to improve the long-term health of companies which is the pension trustees’ primary interest."

The survey also showed that despite the credit crunch most FTSE 100 companies were in a better position today to pay off pension deficits than they were at the end of 2006.

KMPG said the market downturn had added around £20bn to the accounting deficits of FTSE 100 pension schemes, but the survey had showed that 50pc of FTSE companies were overpaying by up to £20m a year.