Defined benefit (DB) pension schemes with 2015 valuations may be facing challenging financial conditions, warns the Pensions Regulator (TPR).
The regulator said many schemes were likely to experience larger deficits than at their last triennial valuation due to changing market conditions.
According to TPR's annual funding statement 2015, although major asset classes performed well, and schemes paid £44bn in deficit repair contributions over the last three years, they were likely to face larger deficits due to falling interest rates and schemes "not being fully hedged against this risk".
The statement, which analyses how employers and trustees of DB schemes agree appropriate funding plans, said better-positioned schemes should be able to address deficits through changes to their funding strategy. This could include a "modest increase" in deficit repair contributions and/or changing their assumptions relating to investment returns.
For schemes with less capacity to take risk, TPR advises employers to make more contributions "without adversely affecting its sustainable growth plans".
Stephen Soper, executive director for DB at TPR, said: "The strong performance of all asset classes during improved economic conditions have benefited pension funds. But persistent low interest rates and falling gilt yields mean that it remains a very challenging environment for DB schemes with 2015 valuation dates."
Gareth Connolly, chair of IFoA's Pension Board, said: "Market conditions for 2015 valuations are extremely challenging in comparison to 2014 and are likely to place additional demands on sponsors. Our members, whether advising trustees or sponsors, will continue to assist the development of risk management frameworks to balance the continuing need to protect members' benefits and the ability for sponsors to pay."
Helen Forrest, defined benefit policy lead at the National Association of Pension Funds (NAPF), said: "This year's concise funding statement reiterates the need for scheme trustees to manage, rather than eliminate, risk and to maintain a clear view of the sustainability of the growth of a sponsoring employer in order to secure the long-term health of the scheme."
NAPF also said it was crucial for the government to support assets that are suitable for pension funds, such as infrastructure.
Forrest said: "The statement also provides a useful commentary on the prevailing economic environment and the impact of this on schemes' funding in general. It recognises, in particular, the detrimental effect of long-term low interest rates on scheme deficits.
"These conditions increase the appetite of funds for assets that match their long-term, inflation-linked liabilities and we believe it is critical the government supports pension funds by ensuring a suitable supply of such assets, including the provision of a pipeline of infrastructure projects with a risk-profile that makes them an attractive investment opportunity for pension funds."