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The stability of defined benefit pensions is at risk from a raft of factors which could see a significant increase in the number of schemes and their sponsors going bust over the course of the century.

A report from the Association of British Insurers, published last Thursday, explores the likely impacts on a scheme, of changes in life expectancy and asset allocation.

Coping With Uncertainty And The Importance Of The Sponsor's Covenant looks at a hypothetical yet typical defined benefit scheme, with assets of £54m and initial liabilities of £67m, projected forward over 90 years.

It concluded that an increase in longevity, on such a scheme, of five years could make it twice as likely to fold and cost its corporate sponsor about an extra £12m in top-ups.

The report also claimed a 50 per cent increase in deviation on equity returns would make the scheme three times more likely to go insolvent.

It stated: "Over the last decade, problems have emerged linked to scheme solvency and exactly how the relationship between the corporate sponsor and the scheme should be treated.

"The aim of this paper is to shed some light on some of the issues underlying the regulatory framework and the operation of DB pension schemes."

Rebecca Driver, research director for ABI and co-author of the report, said: "This research shows the complexity of the risks associated with defined benefit pensions schemes, which are a real challenge for trustees, shareholders and regulators, for example when trying to gauge the strength of a scheme or the impact of a proposed regulatory change.

"This is a particulary important time in this debate, not least because of the worry over equity markets.

"The department of work and pensions has just launched a consultation into risk sharing in occupational pension provision, and these findings show the importance of jointly assessing the impact on both schemes and sponsors."

Andrew Clare, also co-author of the report and chairman of Fathom Consulting, said: "Our unique integration of the processes governing the typical scheme's assets, its liabilities and the strength of the scheme covenant has allowed us to gain insights into the DB pension problem that previous work has been unable to do.

"In particular, our model allows us to look at the interaction between the scheme covenant and both the contribution and asset allocation strategy of a typical scheme.

"In practice, each of these ingredients has a complex and dynamic relationship with one another, which our model has allowed us to shed light upon."