£75bn black hole due to increased life expectancy threatens final salary pensions

The best pension schemes are under further threat after watchdogs warned they must close a multi-billion-pound black hole.

The Pensions Regulator said firms had been underestimating how long people are likely to live, leaving them with a shortfall of at least £75billion.

Its warning raises the prospect of firms and individuals having to pour billions of pounds extra into their funds in order to maintain current benefits.

Experts said contributions to 99.5 per cent of final salary schemes will have to be raised by up to 8 per cent. Up to a third of firms could have to pay up to 20 per cent more.

The Pensions Regulator was assuming that the average 65-year-old retiring today will survive until the age of 90 - up to five years longer than most companies have predicted.

Britain's 200 largest schemes already face a £12billion black hole.

Firms that refuse to take account of increasing improvements in life expectancy face investigation by the regulator, which has the power to force them to contribute more to their pension schemes.

Chief executive Tony Hobman said: "Some projections can no longer be considered reasonable. Scheme members living longer adds to the cost of pensions and it is right that schemes recognise this in their funding."

Tory pensions spokesman Chris Grayling said: "The logical conclusion is that it will lead to more schemes closing. Many are on the brink or struggling to keep up with commitments.

"If you say they have to make substantial additional provision to cover people living longer, that could be a tipping point.

"It's right that pensions schemes should prepare for the future but their job of doing so is much more difficult after ten years of Gordon Brown's tax raids on pensions funds and ill-thought out regulations."

Bob Woods, chairman of pension consultant Mattioli Woods, said: "It is yet another nail - a rather large, unpleasant one - into the coffin of final salary schemes.

"It will force more and more companies to wind up their schemes or encourage them to introduce incentives for their members to leave."

Independent pensions consultant John Ralfe said many firms are not even yet meeting the current benchmark assumptions for longevity, let alone more prudent ones.

"For them, the change is going to be quite significant, adding possibly 10 per cent to the cost of their liabilities," he said.

The National Association of Pension Funds said more than 2,000 final salary pensions closed to new employees between 1995 and 2005.

Overall, the value of personal pension payouts has nosedived by more than three-quarters over the past decade.

The story is different for 5.9million public sector workers, most of whom belong to lucrative schemes.