Pensions deficits in businesses have fallen by almost 25% but experts warn it will still take years to clear shortfalls.
The total deficit for the final salary pension plans of UK companies is now £100bn, down from £130bn at the start of the year, according to new research.
The study, by consultancy Deloitte, shows that the deficits of FTSE 100 pension plans have decreased to £52bn compared to £65bn at the start of the year.
Deloitte predicts that, at the current rate of company contributions, it will take more than 15 years for deficits to be cleared.
However, it argued that companies will increasingly look to eliminate deficits in one go instead, by borrowing money and paying the proceeds into the pension plan.
David Robbins, consulting partner at Deloitte, said: “Companies can receive near-immediate tax relief on pension plan contributions.
“Paying the deficit off over 15 years or more means the tax benefit would only be achieved over that period, whereas borrowing money to fund the whole deficit accelerates the tax break.”
Companies which immediately clear their deficits could also gain from a reduction in their levy to the new Pension Protection Fund.
This levy could amount to more than £10m a year for some of the UK’s largest companies. From April 2006, the levy will, in-part, depend on how well-funded the pension plan is – the deeper the deficit the larger the levy.