Companies with large pension deficits do not invest less than those with smaller shortfalls, according to research by the Bank of England.

The study into The Pensions Regulator’s (TPR) approach to the problem of big funding gaps in the defined benefit (DB) pension schemes of UK companies concluded that a balance had been struck between deficit contributions and ongoing investment.

The working paper, written by Philip Bunn, Paul Mizen and Pawel Smietanka, used data made available exclusively to the Bank by the regulator.

The authors wrote: “These findings suggest that the regulatory approach undertaken by The Pensions Regulator has balanced the need to close growing deficits with the aim of allowing businesses to continue operating in a sustainable way.”

Total DB deficits were estimated to have widened to around £300bn (€336.5bn) by 2015, or more than 15% of annual GDP, the authors said.

However, the data showed that while firms with larger pension deficits – which had an incentive but not an obligation to respond to the deficits – paid lower dividends on average, they did not invest less.

On the other hand, deficit-hit companies under TPR-agreed recovery plans did cut investment and dividend payments on average.

“These effects were greater for firms that were financially constrained, reflecting the more limited options available to them to use external or other internal funds to smooth out their expenditures,” the Bank of England said.

TPR has been criticised in recent months for not taking stronger action to force companies to prioritise their pension funds over shareholders and other financial expenditures.

While the paper mentioned the close relationship between low long-term interest rates and pension deficits, the knock-on effects of funding gaps for some individual companies were “macroeconomically small compared to the stimulus offered by the Bank of England’s quantitative easing [QE] policy.”

Bunn, Mizen and Smietanka said their findings implied unconventional monetary policies such as QE were likely to have had mainly positive effects at the macroeconomic level, even after taking account of the impact on pension funds.

“Our results suggest that – for the UK and other countries in similar positions – that large DB pension deficits can have significant effects on investment and other expenditure decisions at the firm-level, but for the UK at least, the macroeconomic consequences have been relatively small,” they said.

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