Companies are spending £42 billion more a year on defined benefit (DB) pension scheme contributions for the oldest third of pension scheme members, according to research by the Intergenerational Foundation (IF).

In comparison businesses spend £1.8 billion on defined contribution (DC) schemes.

This is equivalent to an older worker in a DB pension scheme receiving contributions of £23,600 a year, compared to £1,200 a year for a younger employee in a DC scheme.

The IF suggests that allowing businesses to evenly distribute contributions between workers would allow them to investment more and increase wages.

Angus Hanton, IF co-founder, said:

“The burden of having to divert huge sums of money to fund final salary pension promises is effectively choking UK companies and acting as a drag on investing for younger workers.

“Companies, DB scheme managers, unions and recipients need to accept that current final salary pension payments should be reformed more quickly and linked to greater investment in the future sustainability and profitability of businesses.