Weak long-term returns on assets are the key fundamental problem for companies with defined benefit pension schemes, Fitch said yesterday.
The low growth environment and 'ultra-loose' monetary policy mean almost all assets are now offering very low returns, with some of the safest, such as UK gilts and highly rated corporate bonds, now offering below-inflation returns.
'This is a long way from the steadily rising asset base companies would have expected. Companies will have to make up the difference,' Fitch explained in a note.
Last week, the National Statistician decided against changing the way the Retail Prices Index is calculated. Fitch noted that while this could have reduced future pension payouts - and therefore liabilities - asset returns were a bigger influence on how much additional money companies have to plough into their pension schemes.
Low returns would matter little if they were short-term and followed by a rapid correction, but Fitch said the chances of this happening were 'limited'.
Pressure from regulators and to use certain accounting methods has led to schemes investing in safer assets - in particular bonds - rather than equities, which has further diminished the potential for a 'swift recovering' in asset returns.
'Switching to bonds after a stock market crash in 2008 has effectively locked in losses for many companies, and unlike equities, bonds are likely to lose value as the economy recovers and interest rates rise,' Fitch explained.
'While open to debate, there is typically a correlation between risk and return in asset allocation, and a focus on safety is likely to reduce returns in the long run.'
The agency noted that the most obvious manifestation of these low returns was in pension valuations, with deficits rising and pressure growing on companies to close their funding gaps.
But, it said that for the 'vast majority' of UK companies the problems were 'manageable'. 'A combination of scheme closures, novel approaches to scheme funding, and healthy performance by many, means that pensions are not a game changer,' it added.