Asset-backed contributions (ABCs) are being increasingly used by companies to fund smaller pension scheme deficits, according to research from Deloitte.

In 2013 80% of ABCs were used to fund deficits of less than £100m, which is up from 50% in 2010.

Deloitte said that the structures are being increasingly used to protect against the risk of overfunding of pension schemes.

David Robbins, Deloitte pensions advisory partner, said: "FTSE 100 pension scheme deficits have shrunk over 2013 but we estimate the aggregate deficit is still close to £100bn. However, this could all be eliminated if gilt yields continue to rise, leaving schemes in surplus.

"ABCs offer an alternative for companies that don't want to pay cash into their pension schemes with no hope of ever seeing it again if a scheme's fortunes improve."

He said that a variety of assets classes are being used in ABCs. In particular loan notes have become a more popular asset choice, but real estate, stock and intellectual property are also used.

ABCs were traditionally an option only for large pension schemes with contributions as large as £600m used to fund deficits, but demand from smaller schemes has risen due to increased flexibility and lower implementation costs, Deloitte said.

Robbins said: "Wider understanding and greater flexibility of ABCs has helped make the structures more accessible to smaller schemes. Only half of the implementations in 2010 were to fund deficits of less than £100m. This figure has increased to more than 80% in 2013 and I expect this trend to continue."

First published 26.11.2013

monique_simpson@wilmington.co.uk