Three million pension savers in defined benefit (DB) schemes only have a 50-50 chance of receiving their full benefits.
Despite employers pumping in £120 billion over the last 10 years in special contributions, scheme deficits have remained at over £400 billion, the Pensions and Lifetime Savings Association (PLSA) has said.
While most schemes will be able to reach a sustainable funding position, this will not be the case for all schemes, the report warned.
It said many employer covenants (employers’ ability to meet their obligations) are under pressure and three million members in the weakest schemes only have a 50-50 chance of receiving their full benefits.
Cases such as the collapse of BHS have helped put pensions under the spotlight.
Ashok Gupta, chairman of the PLSA DB task force, warned that without change there is a “real possibility” of more high-profile company failures.
He said more than 11 million people across the UK rely on DB pension schemes for some or all of their retirement income.
DB schemes, which promise savers a certain level of income when they retire, have become increasingly rare in recent years as firms have found them expensive to run as people live for longer.
The report suggested improving efficiency by making it easier to standardise and simplify costly-to-administer benefits.
It said the UK’s 6,000 DB schemes manage tens of thousands of different benefit structures.
Schemes could transfer into newly created “superfunds”, it suggested.
Trustees and employers would need to jointly agree to transfer their scheme including all assets and liabilities into the superfund, with employers paying a fee upon entry to reduce scheme underfunding.
Superfunds would aim to pay members the full value of their benefits in more than 90 per cent of scenarios.
The transfer would only take place if trustees had assessed the new arrangements and agreed that they are beneficial to members.
Graham Vidler, director of external affairs at the PLSA, said: “The task force’s analysis of a potential superfund framework moves forward significantly the case for considering how employers can be enabled to swap covenants for cash.”
Sir Steve Webb, a former pensions minister who is now director of policy at Royal London, said high-profile cases involving pensions “are only the tip of the iceberg”.
He said: “If schemes can be consolidated in a way which provides better value for money, reduced pressure on employers and an increased chance of pensions being paid, this could be a real step forward.”
A spokesman for the Pensions Regulator said: “While some defined benefit schemes are facing significant challenges, as highlighted in the PLSA’s report, over the longer term, most will be able to pay members their promised benefits.
“We are clear that while the majority of DB schemes remain affordable, many should do more to tackle increased deficits and reduce risk to pensioners.
“We are prepared to use our powers where employers and trustees fail to tackle problems.”