Defined benefit pension liabilities have increased by 85 per cent over the last ten years reaching a staggering £625bn, according to a report by LCP.

LCP’s Accounting for Pensions 2017 report revealed that ten years ago DB schemes had a surplus of £12bn, which over that time has become a deficit of £17bn. This is despite FTSE 100 companies paying £150bn into their DB schemes over the last ten years.

However, since last year’s survey FTSE 100 accounting deficits have improved due to strong returns on assets and a record level of contributions, with FTSE 100 companies paying £17.3bn into their DB schemes in 2016.This follows £13.3 billion of contributions paid in 2015, £12.5 billion paid in 2014 and £14.8 billion paid in 2013.

Following the Brexit vote last year, the deficit increased to almost £80 billion at the end of August 2016 – the highest level since 2009 – before steadily reducing over the remainder of 2016 and the first half of 2017. Overall, this has resulted in the total net deficit reducing by £29 billion from the position at 31 July 2016 disclosed in last year’s report.

The report also revealed the stark difference between DB and defined contribution pension schemes; the typical accounting cost of a DB pension is now 55 per cent of salaries, whereas it said for DC pensions, FTSE 100 companies will only have to pay a minimum of 3 per cent of salaries.

LCP senior partner and author of the report Bob Scott said: “The fall in bond yields over the last 10 years has led to a sustained rise in liability values, more than 85 per cent since 2007, meaning companies have effectively paid £150bn to go backwards. Companies remain under increasing pressure to pay more into their schemes, and one can only hope that the contributions companies pay in future will have a bigger impact on the pensions deficit than in recent years.”

Pensions and Lifetime Savings Association director of external affairs Graham Vidler said the evidence in the report supports the analysis of the DB Taskforce that the current DB system isn’t fit for the future.

“The need to pay for past promises could divert employer resources away from the investment necessary to ensure their firms’ future. Despite this, these firms are running to stand still as deficit levels remain stubbornly high and members of schemes whose employers are most under pressure have just a 50:50 chance of seeing benefits paid in full. The current system is not fixing itself as it is too fragmented, manages risk inefficiently and has a rigid approach to benefits.

“We believe that consolidation [the process of bringing together some or all of the elements of DB provision] has the potential to reduce risk to scheme members, as well as for sponsors and the wider economy. We will shortly be publishing our final Taskforce report, which will develop proposals for the policy and regulatory measures needed to overcome the current barriers to further consolidation and ensure more members and schemes can access the benefits of greater scale.”

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