Schemes urged to cut benefits by 10% to save corporate sector - UPDATED

The Centre for Economics and Business Research said benefit cuts would bring schemes back into solvency without forcing the Pension Protection Fund to raise levies - which could bankrupt more firms.

CEBR managing director Mark Pragnell said latest PPF figures showed schemes lost £98bn in two months and DB pensions were the "doomsday machine" behind the collapse of UK plc.

Pragnell added companies had made pension promises that were never likely to be met and "badly conceived" legislation had shifted power from trustees to independents - who made a "comfortable living" from pensions.

"If benefits were cut by 10% across the board and if companies were to pay up to cover the rest of the deficit a rolling collapse into bankruptcy for UK plc could be averted," Pragnell said.

Former Downing Street pensions adviser Ros Altmann said benefits will, in many cases, already be reduced when schemes fall into the PPF.

"So the debate is really about how much and whether the firm has to go bust first or not. The real problem is for companies with mature schemes where the investments had over-relied on equities that have not delivered.

"If the employers had been forced to fund better in the last 15 years or so, the problems would not be as bad. Also, corporate UK might not have been so over-indebted either."

Altmann said now would be the perfect time for the government to underpin the PPF and issue gilts to help trustees better match liabilities.

Association of Consulting Actuaries chairman Keith Barton said accrued benefits could only be reduced with member consent.

"Persuading, particularly, deferred and pensioner members to reduce benefits would be extremely difficult and might well prove counter-productive."

The National Association of Pension Funds added there was "no magic bullet" to solve the pensions funding crisis.

Head of press Mark Brooks said the economic climate was "making it tough for trustees and sponsors" but the industry was working hard to resolve the issues around scheme funding.

A department for work and pensions spokesman said: "The government agrees with the CBI who this week warned against the overreaction to deficits, making clear the importance of a longer-term view on liabilities of private sector final salary schemes.

"The Pensions Regulator has sent a message that trustees should focus on making sound decisions in the long-term interests of scheme members, sensitive to the current economic climate. Both the CBI and the NAPF welcomed the Regulator's statement in December on the flexibilities that exist in the system for dealing with challenging economic circumstances and problems with cash flow both in terms of the sequencing of payments and the length of recovery plans.

"The government will work hand-in-hand with the Regulator, PPF and industry as we focus on sustaining a flexible, proportionate and effective pension protection regime."