The combined pension funds deficit for companies in the FTSE 100 has seen huge increases in the past year, according to pensions consultancy LCP.

In its annual report, LCP said that by the end of July 2016, the deficit was an estimated £46bn, compared to £25bn earlier in the year.

The LCP report, which looks at how FTSE 100 companies are managing their pension risk, found that FTSE 100 companies pay around five times as much in dividends as they do in contributions to their defined benefit pension schemes.

LCP says the recent collapse of BHS and the potential sale of Tata Steel UK highlighted the significance of pension liabilities.

Bob Scott, author of this year's report and LCP senior partner, said: "Both these underfunded pension schemes have highlighted the significance of pension liabilities and the impact that a large defined benefit scheme can have on a UK company."

"Companies with large deficits may see pressure from the Pensions Regulator on their dividend policy in light of the Select Committee's report into BHS," he added.

The report also found that FTSE 100 companies put more than twice as much money into defined benefit (DB) schemes as they do into defined contribution (DC) pensions - £13.3bn compared with £6bn – and the gap has grown in recent years.

"Not only is this a drag on company performance and the wider UK economy, but the relatively small contributions going into DC schemes may be storing up problems for the beneficiaries of those schemes when they come to retire," Scott said.

LCP is calling for pension scheme deficits to be cut by reducing the level of increases they are obliged to provide.

It says allowing companies to alter the increases applying in their pension scheme to the Consumer Price Index would reduce FTSE100 pension liabilities by around £30bn.

"The government should end the uncertainty – the legal lottery – by allowing companies to move from RPI to CPI, subject to safeguards," said Bob Scott.

"The safeguards are important as they should not automatically allow a profitable company with a large pension surplus to increase that surplus by reducing benefit, but they could, provide relief to a company with a large deficit, where the trustees agreed it was in the members' interests for benefits to be reduced."

First published 18.08.2016

Lindsay.sharman@wilmingtonplc.com