A #100 billion pension black hole could threaten the survival of up to a quarter of UK firms, it was claimed today.
Research from Deloitte estimates that 25 per cent of companies may struggle to pay back their pension deficit within the ten-year period set by the Pensions Regulator.
An analysis of current pension deficits and reported earnings by pensions actuaries at the accountancy firm also valued the total pension deficit of UK businesses at #100 billion.
New funding legislation brought in this year handed greater power to pension fund trustees when negotiating future contributions with the company.
The funding requirements are likely to require companies to pay off deficits over no more than ten years. But, despite increased company contributions, the gap has not closed as quickly as hoped, due in part to weak bond yields.
And the weakest employers may be the hardest hit, Deloitte warned.
Angus Martin, corporate finance partner at Deloitte, said: "In some companies the deficit is so large that the pension scheme trustees effectively own the company and without a robust funding plan, pension scheme trustees have the potential to push firms into insolvency.
"This is not in the interest of trustees, scheme members or companies. Trustees have a duty to their members to work with the organisation to ensure that this problem is overcome and any deficit is fully funded over a reasonable timescale."
A number of West Midlands firms have already fallen foul of the pension trap. In January, Leamington-Spa-based AP Hydraulics became one of the first companies to call in the administrators after struggling to meet its pensions obligations. The brake components firm failed to generate enough cash to fill its pension fund shortfall of about #40 million and was eventually bought out by Caparo Braking.
In April, a pension shortfall brought down one of Birmingham's oldest firms - badge and medal-maker Firmin & Sons.
Despite a 16 per cent rise in sales to #3.4 million in 2005 and a "considerable share" in a five-year contract to supply buttons and badges to the Ministry of Defence, the firm racked up a #2 million deficit.
The firm axed jobs at its Newtown Row site but chair-man Fred Hsu was finally forced to call in the administrators and the 329-year-old business was bought out by London-based uniform maker Kashket.
John Lamb, spokesman for Birmingham Chamber of Commerce & Industry, said: "Companies have been left with an enormous burden.
People have had to look at their whole operations and staffing levels to work out how to cope with their deficits."
Mr Lamb added that the high-profile collapse of van maker LDV was an example of the "far-reaching consequences" of pension deficits.
It is thought that the estimated #22.4 million deficit at LDV deterred US investor Sun Capital Partners from signing up to a major cash infusion into the Washwood Heath company until the problem could be offloaded with the firm falling into administration.
"For those businesses that are in trouble, having a pension deficit is likely to deter investors," Mr Lamb said.
"I have heard examples of potential buyers walking away from companies when they realise the size of the pension hole. This has far-reaching consequences and will affect businesses in this country for many years to come."
In a separate development, the Pensions Regulator also raised concern that new ways of managing pension funds could lead to employers abandoning schemes. During a speech at European Pensions 2006, chief executive Tony Hobman said corporate transactions which transfer pension schemes to new vehicles could result in schemes being jettisoned without employers fully meeting their obligations to members.