UK companies could be faced with final salary scheme shortfalls of up to GBP160 billion, which could seriously damage the economy, according to a report from Capital Economics.

Firms will have to pay between GBP10 billion and GBP40 billion a year into their pension plans for ten years to make up for the deficit, the report said. Economic analysts Roger Bootle and Jonathan Loynes, the authors of the report, believe that this will have a devastating effect on business as companies divert profits to pension funds instead of investments or dividends.

A previous study by accountants Deloitte & Touche in December 2005 estimated that the deficit among FTSE 100 firms was GBP75 billion. Several large firms have now shut their final salary scheme to new members, while others such as Rentokil Initial have taken the step of closing the scheme to existing members.