The total deficit of British final-salary linked company pension schemes more than doubled to 231 billion pounds in the space of a year, the Purple Report said, highlighting the impact of rock-bottom bond yields.

"Things have got much worse for defined benefit (DB) final salary pensions," said Mel Duffield, head of research at the National Association of Pension Funds (NAPF). "Our fear is that the firms might decide to close these pensions altogether, further undermining the UK’s ability to save for its old age," Duffield said.

Benefits under these DB schemes are pre-determined using a formula based on salary and duration of employment. Repeated rounds of central bank easing have contributed to a sharp drop in the yield on British government gilts – a staple investment for pension funds – making it more expensive for funds to match income to liabilities unless they add riskier, higher-yielding assets to portfolios.

"Pension funds urgently need help to deal with this difficult environment. The Government should encourage the Pensions Regulator to allow them to make a temporary uplift to discount rates based on gilt yields," said Duffield.

  Reuters /   Purple Report