The UK’s defined benefit pension funds are in worse shape than Alice in Lewis Carroll’s Through the Looking Glass. The Red Queen said she had to run fast to stay in the same place. Pension funds are running fast, only to go deeper into deficit. In the process, their sponsors are depressing business investment, thereby damaging themselves and the UK economy. This is self-defeating.

A number of analysts – among them Fathom Financial Consulting* and Lombard Street Research** – have described what is happening. Aggregate contributions to pension schemes by sponsoring companies jumped from £30bn in 2001 to £48bn in 2004. Over the same period, nominal business investment declined by £1.2bn, though real investment rose modestly, by £1.5bn. The share of business investment in nominal gross domestic product is at its lowest since records began in the 1960s. Companies also ran an aggregate financial surplus of more than 3 per cent of GDP in the third quarter of last year.