The high levels of defined benefit (DB) pension scheme deficits are hampering the ability of UK companies to invest in their business, according to a new report published by the ICAEW and Mercer.

The report, Living with Defined Benefit Pension Risk investigates attitudes to DB pension risk among finance directors (FDs) and other senior leaders of some of the UK's largest companies. The report also highlights that the impact of Quantitative Easing (QE) on the UK's DB pension schemes is among FDs' greatest concerns.

According to those interviewed, more than half (57%) said that their DB pension scheme will have a negative impact on the financial performance of their business over the next three years. Respondents also highlighted that QE in particular has been perceived to have inflated scheme liability values, pushing their companies to increase their contributions to fill expanded pension scheme deficits. In parallel, QE has also made it prohibitively expensive for UK plc to implement DB risk mitigation strategies to help them manage the volatility behind their pension schemes.

Ali Tayyebi, senior partner at Mercer said: 'Our research reveals a paradox. While the negative impact of DB pension scheme deficits is clear, companies face a quandary. The current environment which emphasises the need for a clear risk management strategy, is also the one in which it is most difficult to implement de-risking strategies. Companies are concerned about being locked into low interest rates, and the scope to increase cash contributions to their pension schemes in the current environment is limited.'

Management of DB pension scheme risk was recognised as a priority in almost all companies. As expected, attitudes depended on the size of the scheme relative to company turnover and the scale of the deficit. Nearly 40% of the reports participants said that that DB pension risk is the most, or one of the most, important risk management priorities for their organisation.

Robin Fieth, executive director, ICAEW said: 'Although recent years have seen many schemes close to new members and future accrual, DB is still an important part of the UK pensions landscape with around £1 trillion still invested in DB schemes.

'The difficult market combination of low gilt yields and euro zone uncertainty is hitting pension schemes hard. Many companies face the stark pressure of ploughing considerably more cash into their pension schemes, being unable in practical terms to agree longer recovery periods with their trustees. It is vital that employers take a proactive approach to balancing the need to meet their DB pension obligations whilst conserving cash, and investing in the future growth of their businesses.'