The figures suggest a sharp rise in the deficit as a proportion of profits over the past five years. In 2011, the pension deficit for FTSE 350 companies was £54.5bn – just 25% of their £214bn pre-tax profits. In 2009, in the aftershock of the financial crisis, the deficit as a proportion of profits was still considerably lower than it is now, at 60%.

Barnett Waddingham says that if profits were to remain steady for the next three years, it would only take a 0.7% fall in bond yields for the pensions deficit to actually exceed annual UK plc profits by 2019. 

The report also found that the deficit for the UK’s top 350 companies increased as a proportion of market capitalisation in 2016, despite strong performance from the equity market. This trend may be particularly alarming for the 21 firms whose deficit now exceeds 10% of their market value.

One factor that could reduce the deficit in the coming years is mortality, with recent data suggesting that, across the UK population as a whole, longevity has not improved over the past five years. If this had been recognised in the financial statements of the FTSE350 companies last year, it would have reduced the aggregate deficit by around £10bn, Barnett Waddingham calculates.

Nick Griggs, partner at Barnett Waddingham, said: ‘Comparing the pension deficit to profits is a simplification, but it helps to put the scale of the challenge into context. Unless companies are profitable over the long term, they can’t generate enough cash to meet their liabilities, including the pension deficit. 

“That said, it is also worth bearing in mind that if equity returns continue at the levels seen in the last few years, long-term interest rates rise more than expected and longevity increases do not provide any nasty surprises, the pension deficit problem could solve itself. This is why many companies are not rushing to clear deficits quickly with additional cash contributions.’

FTSE350: Impact of pension schemes on UK business is here.