ANNUAL pensions bills for British businesses will soar by £11 billion to about £37 billion if they fill the black holes in their funds within ten years, as expected under new rules, according to leading actuaries.

Donald Duval, the former Government Actuary of Australia and now chief actuary for Aon Consulting, gave warning yesterday that companies would have to issue bonds or cut dividends to comply with proposals by the Pensions Regulator.

The CBI, the employers’ organisation, said that the ten-year deadline could even push some companies out of business. “If cashflow disappears, there won’t be a company, let alone a dividend,” Susan Anderson, director of human resources for the CBI, said.

The huge cost of covering a final-salary pension fund deficit came to the City’s attention earlier this week, when HBOS said that it planned to wipe out its £1.8 billion deficit over the next ten years.

Despite a £194 million contribution to the fund last year, up from £50 million in 2001, James Crosby, the bank’s chief executive, said that full repayment would require a “considerable initial contribution” followed by increased annual contributions.

Pension fund contributions by businesses have already soared from £11 billion in 2001 to about £26 billion last year as companies grapple with deficits in their final-salary schemes caused by improved life expectancy and falling stock markets.

UK firms have made pensions promises worth £1,000 billion but have a shortfall in their funds of £134 billion.

Mr Duval said that if companies were to pay this deficit off over seven years at about £20 billion a year, they would have to increase their annual payments by £11 billion. A seven-year payment deadline takes into account companies that have already set repayment timetables of less than ten years, Mr Duval said.

“It’ll affect dividends, how much they invest and people will be making bond issues for money to put into the pension scheme,” he said.

“This will affect their gearing. Some companies may be driven under if debt providers refuse to provide more capital.”

The Pensions Regulator, chaired by David Norgrove, is currently consulting on its approach to scheme funding, in which it said that it would “take a close interest in any company proposing to close their deficit over a period longer than ten years”.

Research by PricewaterhouseCoopers for the regulator found that between 10 and 15 per cent of companies would need between 25 and 100 per cent of their free cashflow over the next ten years to pay off their deficits.

Up to a fifth of companies would need more than their entire cashflow over the period to cover their promises.

Eddie Thomas, the managing director of Law Debenture, the United Kingdom’s biggest independent trustees, said that while large companies were reasonably comfortable about the prospect of the ten-year deadline, mid-sized and smaller companies had not even begun to address their deficit.

“It’ll be tough for some and some will struggle, even over ten years,” Mr Thomas said.

A trustee of two major pension schemes said, however, that companies with well-funded schemes saw the deadline as a positive matter.

The trustee said: “Stuffing the money into the pension fund isn’t a bad thing to do because you get a tax deduction and it’s a form of saving for the future.”

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