Companies are failing to take advantage of improving market conditions and overpaying some £9bn a year into their pension schemes, PricewaterhouseCoopers claimed today.
Issuing its new Skyval Pension Index, which tracks the health of defined benefit schemes across FSTE100 companies, on a real-time basis, PwC said pension scheme balance sheets could look £70bn worse off than they really are.
The index found that aggregate funding ratio of pension schemes with valuation dates of December 31 2012 improved by 9 percentage points, from 79% to 88%, over the following year, while deficits were down by a third the time valuations were required to be finalised in March 2014.
PwC cited improvements in changing market conditions, particularly rising nominal interest rates and gains in return-seeking assets, but the firm not enough pension schemes were taking advantage of this to invest elsewhere in their business.
It suggested that a more accurate picture of a scheme's deficit would allow companies to pay the cash necessary to support the scheme prudently rather than target excessive reserves.
PwC head of pensions Raj Mody said: 'Pension scheme funding is a one-way valve - once money is in the pension fund it is unlikely to ever be returned, even if it surpasses requirements.
'It is surprising that more companies with defined benefit pension schemes are not taking advantage of the improved market conditions to better manage their cash commitments.'
Mody said cash was being unnecessarily tied up in pension schemes when it could be reinvested in the business to support growth.
He added: 'Pension funding negotiations should not be a one-time event. Monitoring funding in real-time to take account of market movements will allow companies to only pay the cash needed to support the scheme and arms trustees with more useful information.
'A more accurate picture of the pension scheme's deficits will leave trustees safe in the knowledge that they can afford to remove risk from the pension scheme, which will ultimately benefit the scheme and employer.
'A lack of real-time accurate information could result in flawed management actions on both sides of the pension scheme table - for employers and for trustees.'