Pension scheme trustees are now looking for employers to significantly increase the cash funding to meet the larger deficits.
However, this is occurring just at the time that private sector employers most need to retain cash as business recovery develops.
The public sector, too, is set to face similar, if not greater cash funding demands as pressure intensifies on public sector spending.
When businesses need to raise working capital as demand returns, the prospect of having to divert more cash funding in the short term is a major risk. Instead, business needs to invest to sustain and improve the capacity to support pension schemes in the long term.
The good news is that many employers are already alert to this dilemma. So, how are they addressing this issue?
Fundamentally, businesses are beginning to take the lead on managing their pension schemes - a role hitherto left to trustees.
Employers are actively assessing how best to fund pension schemes, how the scheme assets should be invested and how to manage the existing liabilities.
The latter is an acute issue for many companies which have reduced largely manufacturing workforces over the last ten to twenty years.
First, employers are now "thinking the unthinkable” and considering a marked reduction in benefits or the full closure of their existing pension schemes.
The closure of defined benefit schemes presents a real challenge for employee relations and for many companies, requires negotiation with trade unions. However, such action has become inevitable. The cost of providing pensions has increased inexorably as the working population lives longer, something which has been recognised by the UK government which has announced plans to raise the state pension age.
Achieving major change in pension strategy needs detailed consideration and specialist advice.
Second, employers have the opportunity to play a major role in how pension schemes are invested. Generating greater returns from the pension scheme can be achieved with no increase in risk and volatility. What is required is a more innovative approach to investment strategy.
Finally, employers need to take action to manage and reduce their legacy pension liabilities.
These liabilities often arise from having had much larger manufacturing workforces in previous years or have been acquired from acquisitions.
Critically, the size of pension liabilities bears little relationship to the current workforce and sometimes, the financial capacity of the company.
However, much can be done to reduce the level of these liabilities and to lower the risk of even larger deficits appearing in future.
Now is the time for action. In 2012, all employers will see an increase in their pension costs with the launch of National Pension Savings Accounts.
Some businesses, particularly those in the retail sector and businesses with a low pensions average, will experience large cost increases.
What employers need to develop is a business plan for pensions - a roadmap to navigate the issues of cash fund, investment and pension liabilities.
