The Department of Work and Pensions wants to cut down on benefit fraud - but data acquired by the Guardian finds that an expensive "voice analysis" system was only as good as a coin toss in 4 of 7 trials

The government has so far spent £2.4m on trials of a "voice risk analysis" (VRA) system, using technology licensed from a company called Nemesysco. The idea is that it will be used by trained operators who will be alerted when a caller's voice exhibits signs of "stress", and focus more carefully on what is really being said to see whether the caller is being truthful.

Nemesysco and Digilog, the company which sells the technology in the UK, are careful not to call the VRA system a "lie detector". But that is the application to which the single JobCentre (which tested it against callers seeking Jobseeker's Allowance and income support) and six local councils (which tested it on callers seeking housing benefit) really wanted to put it to. Callers were separated into "high risk" and "low risk" on the basis of the software's analysis of their reaction to questions; more detailed interviews then followed to see whether they were receiving the benefits they deserved, for both groups of people.

Two Swedish scientists, Anders Eriksson and Francesco Lacerda, have previously questioned the efficacy of this technology, saying its verifiability - that is, whether the claims made for its can be justified - is "at the astrology end of the spectrum". However Yossi Pinkas, Nemesysco's vice-president of sales and marketing, insists the system "can't be tested in a lab environment, because you're testing emotion". To him, Lacerda and Eriksson's analysis is flawed because "there's no scientific field of 'voice analysis', only voice recognition".

But the data released to the Guardian by the Department of Work and Pensions from the first trials, carried out between May 2007 and July 2008, show that at only three of the seven locations did the technology fare better than flipping a coin, even by the DWP's own statisticians' analysis.

Many of the cases picked out by the software as "high risk" - that is, suspected of making fake claims - turned out to be legitimate; their benefits were not changed following more detailed interviews.

For the other four locations, the DWP statisticians were forced to "accept the null hypothesis" - that is, concede that the VRA system did no better than flipping a coin and deciding to press someone further on that basis.

And even for those three locations, the DWP's number-crunchers aren't sure about the cost-analysis benefit. Without knowing by how much the benefits were changed, they say, it's difficult to evaluate whether any money is really being saved at all. In some cases, councils actually increased the money paid in benefits following these interviews.

Will the DWP acknowledge the failures of the system? Not in a hurry, it seems: at the end of last year it said it will roll out the system for further trials in another 18 councils. The JobCentre however has declined to take part in the second round of trials.

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The government is heavily criticised by MPs today for the "shabby, constitutionally dubious and procedurally improper" way it responded to a report into its handling of the problems at Equitable Life.

The Commons public administration committee said the scandal-hit insurer's policyholders had "good reason to be angry" about the way the government had "spun" its response to the parliamentary ombudsman's call for a scheme to be set up to compensate victims of the fiasco.

The MPs' report is likely to reopen the long-running debate over how much should be paid to those who lost money when the world's oldest mutual insurer came to the brink of collapse almost a decade ago.

A million customers saw their retirement savings slashed when Equitable was plunged into chaos by a court ruling. Campaigners have long battled for compensation, and last year it looked as if the government would have to pay out billions of pounds after the ombudsman, Ann Abraham, said she had found evidence of "serial regulatory failure" by the government departments and watchdogs that were supposed to be protecting the insurer's customers.

But when ministers made their response to her report in January, many customers were disappointed. In a statement to MPs, Treasury minister Yvette Cooper apologised to policyholders on behalf of regulators and successive governments for the "maladministration" that had led to the insurer's near-collapse. She said some policyholders who lost money may be entitled to redress, though payouts would focus on helping those investors who had been "disproportionately affected".

She rejected recommendations that the government offer compensation to all Equitable members. Instead, it decided to appoint a retired judge to study Equitable's books to work out which policyholders had been hardest hit and what proportion of their losses could be attributed to the maladministration accepted by the government.

In its report today, Justice Denied?, the public administration committee says the government's proposed payment scheme could help some policyholders, but is "inadequate as a remedy for injustice".

The MPs point out that the government acknowledged that public bodies were responsible for maladministration, and that some policyholders had suffered financial loss as a result. However, it was not proposing to pay these people compensation, but instead was setting up a "limited ex gratia payment scheme for an uncertain number of policyholders".

While the government's position might be legally valid, "we think most people would consider it to be a morally unacceptable one". They were concerned that the process ministers were following "looks set to be complex", and, therefore, probably "slow and onerous" for policyholders.

The report also said retired judge Sir John Chadwick's remit was "of limited scope" and, when his work was complete "the government, not Sir John, will decide who receives payments and on what scale".

They added that it was "shabby, constitutionally dubious and procedurally improper" for ministers to argue at the eleventh hour that parliament had accepted it was not generally appropriate to pay compensation even where there was regulatory failure.

They reserved some of their criticism for Cooper. While her January statement to MPs was not inaccurate, it had "left members and the public with an incomplete understanding of the government's position ... [She] should have been more explicit in her statement to the House about those findings made by the ombudsman which the government was rejecting or substantially qualifying".

Paul Braithwaite of Equitable Members Action Group (Emag) said MPs should insist on an urgent debate. "Emag wants proper compensation for all the victims of this scandal, not just charity handouts for a few. Parliament needs to stand up for the victims and for its own ombudsman, and make the government think again."

The Post Bank idea is a win-win – extending the Post Office's private partnership while safeguarding it as a public service

I'm delighted to hear and support the calls for a "people's bank" or Post Bank.

This year, the Post Office marks its 40th anniversary as a public corporation. They say life begins at 40, so we really should consider giving it a new lease of life by turning it into a people's bank.

For the three million people who don't even have a basic account, the Post Office should be allowed to provide them with basic financial services, which most of us take for granted. To do this, the Post Office card account scheme, which I was closely involved with in the past, should be expanded to become a real alternative to an account with a private bank.

Turning the Post Office into a people's bank was one of the actions we were campaigning for in our No Ifs No Buts Facebook campaign last year, along with calls for banks to pass on the interest rate cuts to customers and for RBS to stop handing out £1bn of our money in bonuses. That's why it's great to see the CWU, Unite, the Federation of Small Businesses and the National Pensioners Convention coming together to put forward the proposal for the Post Bank.

You can see why it's a win-win for everyone. SMEs heavily rely on a good local Post Office, and the ability to offer more credit to local businesses when liquidity is still a problem is just common sense.

For pensioners, it would ensure the local Post Office receives more revenue and continues to provide that valuable community link for social interaction, as well as offering a trusted financial institution to look after their money. And for Post Office workers, it helps to strengthen the financial position of Royal Mail, with the possibility of creating an extra 11,000 jobs.

In fact, there's no better time to launch a bank with a more ethical approach when the whole system of banking is under review after years of greed in the sector. It's also noticeable that another ethical financial institution, the Co-op bank, didn't experience the meltdown that its more profit-driven rivals did.

I'm also glad to see government is seriously considering the Post Bank proposal. It shows that ministers are willing to listen to good ideas.

But it's really interesting that the Post Bank should be launched on St Patrick's Day. The Post Office partnered with the Bank of Ireland to deliver the Post Office card account. What's more, the Bank of Ireland – a commercial bank – splits the profits with the Post Office. It's another example of a public private partnership in our postal services.

The difficulties are how we can continue to provide subsidies for our 11,500 Post Offices and find extra capital to modernise the Royal Mail and the Post Office.

The new bill has given a commitment that the Post Office will remain wholly publicly owned, subsidised, and that there will be legislation to prevent the creation of Post Office shares. But in the case of the Royal Mail, perhaps other ways can be found to bring in sufficient private capital and business expertise in a public private partnership without diluting its ownership, to ensure it remains publicly owned and publicly accountable.

On my Go Fourth blog on Monday, I called for an intelligent debate on public private partnerships in the Royal Mail and Post Office, which Michael White referred to on the Guardian politics blog.

So, let's now look at how a Post Bank, the Post Office and the Royal Mail can work together to ensure we have a modernised and more efficient postal system that guarantees universality but remains, at its very heart, publicly owned and publicly accountable.

Read John's blog on GoFourth here.

We need to revise our ideas about the over-65s: enforced retirement is no longer affordable

For the 17 million people who are 50 or over, the ability of employers under the law to enforce retirement at 65 is a serious problem, especially given the impact of the economic crisis on the value of retirement savings. Add to this the fact that unemployment figures due this week are expected to confirm job losses rising fastest among older workers, and we see how vulnerable this group has become. As we adjust to the consequences of the downturn, scrapping the mandatory retirement is becoming essential to their welfare.

Unfortunately, the European court of justice ruled last week that such enforced retirement at 65 was not in breach of EU legislation if it had a legitimate aim related to employment and social policy. The case will now go to the high court. The government had already indicated that the whole issue was under review, but now it will have to go to court and explain why a mandatory retirement age is necessary.

The arguments go to the heart of the debate about ageing societies. In Britain, there are already more people over 65 than there are under 16. Britain's age structure is changing and the dependency of older citizens on people of working age is going to rise dramatically. This poses enormous strategic issues, including the supply of labour in the economy, living standards, and tax and spending policies. Society is going to need the economic and financial contributions of older citizens more than ever. For individuals, there are self-evident advantages. They may want to work longer, because they derive fulfilment from work. They may have to because of adverse financial circumstances.

For society, though, longer working lives would help the adjustment process to an older world in three important ways. First, the labour force would be bigger, and so the financial burden would be smaller. In effect, the huge costs associated with ageing societies would then become self-financing. Second, older people have skills, experience, educational abilities and an earnings and savings capacity that could be deployed to the economy's advantage. Third, tax and social security contributions would be enhanced, and the public sector's age-related spending would be more contained. In fact, the economics makes even more sense if citizens draw their pensions at 65, but continue to work for another five or 10 years.

The reasons for a mandatory retirement age are partly about price and partly about prejudice. Price relates to the higher cost of employing older workers, relative to younger people. Prejudice is about the allegations that older workers are less productive, less adaptable, and less able to remain at the cutting edge. These arguments are neither trivial nor without empirical backing, as regards the weakening of perceptual, cognitive and motor capabilities. But this simply underscores that retirement age cannot be left to mechanistic legislation alone.

We need to develop programmes designed to change the nature of work for older citizens, including lifetime learning and education, and compensation structures based around merit and ability rather than seniority.

Clearly, companies have to be protected from litigation by older people claiming discrimination when refused jobs for which they may be unsuitable. This is no grounds for inaction. In a broad swath of occupations there will be plenty of demand and a lot of employable people who might otherwise waltz into retirement, taking their knowhow with them. We need to abandon the idea of a fixed age for retirement, and take an innovative and holistic approach to the employment of the over-65s.

• George Magnus is senior economic adviser of UBS Investment Bank, and author of The Age of Aging
george.magnus@ubs.com

A coalition of unions, small businesses, charities and pressure groups begin a campaign today for a "people's bank" built on the Post Office network.

The Post Bank campaign believes the strength of the Post Office brand and its 11,500 branches should be used to create a local banking infrastructure throughout the UK. "The effect of the banking crisis means the need for a new, trusted, state-owned bank based on the Post Office network is urgent," the campaigners say.

"There is a unique opportunity to answer both concerns around secure and equitable finance and the future of the Post Office network."

In recent years the Post Office has sought to build up its position in the financial service sector through an increasing range of products – including some banking facilities in partnership with the Bank of Ireland. It has sought to use financial services to replace government business lost to online rivals and other providers.

However, there have been increasing calls for the Post Office, which has more than twice as many branches as Britain's high street banks, to operate its own bank network.

Commenting on the proposals, a Department for Business spokesman said: "The government is committed to a secure, sustainable and successful future for the Post Office network. The Post Office is a trusted institution, offering face-to-face contact in local communities.

"It could deliver more banking and financial services ... There will of course be different views about how to go about this. The Post Bank coalition's paper is a very welcome addition to this work."

The coalition – made up of the Communication Workers Union, Unite, the Federation of Small Businesses, the Public Interest Research Centre and the New Economics Foundation – argues there are significant advantages: a stronger Post Office network, accessible and dependable services, and greater financial inclusion, as well as thousands of new jobs. "Deposits made through the Post Office Bank could play a vital role in reconnecting the banking system with the productive economy," the coalition said.

Post Office Ltd, which runs the Post Office network, is part of Royal Mail. The government is looking at the sale of a strategic stake in much of Royal Mail to an outside operator, though the Post Office part of the business would not be included.

Billy Hayes, CWU general secretary, said: "The Post Bank is the right proposal at the right time, politically and industrially. It answers the needs of the financially excluded and will appeal to many in this time of economic uncertainty."

John Wright, of the Federation of Small Businesses, said: "Small businesses are completely reliant on the Post Office network, with 80% passing their letters and parcels through the Post Office and 47% visiting a post office a couple of times each week. Establishing Post Bank would not only retain jobs but could also, we estimate, create 11,000 new jobs."

Frank Cooper, of the National Pensioners Convention, said: "Pensioners have lost faith in the financial sector and the launch of a new people's bank at the Post Office will offer some much-needed security."

As the recession bites and the Bank of England throws £75bn at the problem, ever more gloomy scenarios are possible. Observer writers examine them - starting with Heather Connon on the stockmarket falling another 50%

Mervyn King, governor of the Bank of England, conceded last week as he launched Britain on a drastic £75bn policy of quantitative easing that he had no idea exactly when the deepening recession was likely to end: "I don't know how long it will take, much depends on the situation in the rest of the world."

He is not alone. As stockmarkets suffered another lurching slide last week, alarmed investors began to stare into the abyss and ask, what if all the government rescue plans fail? We hope it never happens, but here, Observer writers examine what could go wrong. We look at housing, the jobs market, the outlook for the euro, and the threat of global protectionism, and give each a "fear factor," showing how likely it would be that the scenario will happen. First, we ask, what if share prices on Wall Street and in the battered City still have a long way to fall?

The FTSE 100 index has dropped by almost 50% in less than 18 months, and the Dow Jones in the US has fallen even further. But some experts predict that the stockmarket could halve again.

The plunge in share prices so far has caused widespread damage across the financial services industry. How much more serious will that be if share prices continue to fall, and what impact will it have on pension funds, retail investors, insurance firms and the City as a whole?

For many of us, the dream of a comfortable retirement has long since evaporated and a further lurch downwards in the stockmarket could undermine even the meagre provision we still have. For company pension schemes, PricewaterhouseCoopers calculates that the total pension fund deficit for companies in the FTSE 350 index, measured on the funding basis used by the pensions regulator, stood at £33bn at the end of December 2007. By last week that had grown to £200bn. And the firm calculates, if the stockmarket fell by a further 50%, the deficit would jump to a staggering £330bn.

That would accelerate the need for companies to find ways of dealing with the growing cost of providing pensions. Most schemes are already closed to new members - and a growing number to existing ones as well - and there has been a sharp rise in the number of funds being transferred to insurance companies.

But Marc Hommel, pensions partner at PWC, says there is also growing interest in new techniques, such as offering transfers to employees who have left the company but retain deferred pension rights.

PWC has just advised the first FTSE 100 company that has undertaken the former - Hommel will not name it - and a third of companies surveyed plan to follow suit. The transfers will usually be into personal pensions, which mean that the individual will no longer have a guaranteed final payout but will be exposed to the vagaries of the stockmarket.

Those who are in defined contribution schemes - where the pension payment depends on the value of the investments in the pot when they retire - have already suffered from share price gyrations. Financial adviser Hargreaves Lansdowne estimates that the value of these funds has already fallen by a quarter over the past 18 months, and a further halving of the market would mean another lurch downwards.

Some commentators argue that all this only affects those whose retirement is imminent, while others benefit from their contributions buying shares at lower prices. But John Ralfe, a pensions consultant, argues that regular statements highlight the plunge in pension values: "That makes people feel bad. The truth is they may not be retiring for 10 years, but are putting away their savings regularly, and end up with less in their pot than they have actually put in. It is a psychological impact, but it discourages them from saving."

He thinks this could have an effect on the national pensions savings scheme, scheduled to be introduced in 2012, under which people will be compelled to contribute to a fund. But the spectre of plunging pension values may make people question why they should comply.

So your pension is in trouble, but what if you fancy a flutter on shares instead? Barclays Capital, which produces an annual study of the performance of the stockmarket, has already dubbed this the "lost decade", as equities were beaten by government and corporate bonds over the past 10 years.

It's been a lost decade, too, for the retail funds that allow ordinary investors to take a slice of the stockmarket. According to statistics produced by Chelsea Financial Services, just 31 of the 132 funds in the All Companies sector with a 10-year performance record have beaten the 27% return on cash over the past decade - and the worst lost almost a third. In other words, for most investors who carefully tucked money away in the stockmarket, it would have been better to have stuck the cash in their bank accounts.

Not surprisingly, that is already having a big impact on investors' appetite for equities: Investment Management Association statistics show that money flowed out of equity funds in January, and Pep and Isa sales have all but dried up. Retail investors who have been tempted by brief market rallies have had their fingers badly burnt: the rise in the FTSE 100 to more than 4,600 early this year has been quickly reversed.

Andrew Smithers of Smithers & Co, thinks further falls are possible based on previous market crashes, such as the 1974 oil price shock and the 1929 depression, when shares bottomed at valuations of around 55% of their fair value. He estimates that, at the moment, shares are a little below fair value: if they fall to previous levels, it would imply that Wall Street shares have a further 30% from here - and slightly less than that over here.

But he adds that, even if the market does that, it would mean only a further 15% decline compared with peak levels - painful, but not much more significant than has happened so far. "I am moving into the relatively optimistic camp," he adds.

Others warn, however, that recovery could be some time coming: John Higgins at Capital Economics points out that markets tend not to recover until there is clear evidence that the economy and corporate earnings are improving. That may not happen until next year at the earliest.

In the insurance sector, Aviva's results last week were a stark illustration of the damage stockmarket falls have caused. Most of its capital is invested in shares and bonds, and the falling stockmarket has cut its surplus capital to £2bn. A further 40% fall would slash that to £1.2bn.

That is tight, but some other insurers could find themselves in a far worse position. If the financial markets continue plunging, insurers are likely to find themselves in a severe crisis - and it may be a very long time before the damage wrought by the lost decade is reversed.

Pension experts have warned that thousands of people are jeopardising the safety of their retirement pot by accepting incentives to leave company schemes.

A growing number of companies are offering to buy out deferred pensions left in the scheme by former employees by offering them money to transfer into a personal scheme.

According to research by PricewaterhouseCoopers, which has just advised the first FTSE 100 company on such a scheme, 4% of companies have already offered enhanced transfer programmes and a third intend to follow suit.

But there are concerns that leaving a scheme offering a guaranteed level of pension for one that depends on stockmarket performance is high risk.

Pensions expert Ros Altmann said: 'You are transferring the risk from the scheme to yourself ... both investment risks and annuity risk, as you do not know what annuity rates will be when you have to buy one at retirement.'

The drive to persuade scheme members to leave is driven by soaring deficits. PWC calculates that the collapse in the stockmarket in the past 18 months has increased deficits from £33bn to £200bn, while Hymans Robertson estimates the rise in government bond prices last week added £12bn to deficits overnight.

Pension planholders thinking of switching out of equities could live to regret it, writes Neasa MacErlean

People worried about the dire performance of their pension this year may be tempted to switch the money in their fund from equities into cash, but experts urge most planholders to resist.

Since many pension plans have lost a third of their value in the last 12 months, the urge to switch is understandable. Pension specialist Sippdeal confirms that many of its clients are moving to cash. 'Typically, they are moving their accumulated funds and changing their continuing contributions,' says spokesman Billy Mackay.

Funds that hold cash (usually open to both pension and non-pension investors) have enjoyed dramatic growth this year - the Smith & Williamson Cash Fund, for instance, which invests in about 20 bank deposit accounts, has grown from £50m of total assets in April to more than £300m. But with the base rate at 2 per cent and likely to fall further, this is not the best time to switch to cash.

'It is potentially the most dangerous investment,' says Chris Lynas, Smith & Williamson's specialist fixed-interest fund manager, who thinks there is a real possibility that base rates could go to zero. He believes that rates in cash funds could get so squeezed that they will be virtually non-existent. Cash funds levy charges on investors' funds and - depending on the small print - managers could take charges from capital if the income was not sufficient to cover the charges.

Tom McPhail of Hargreaves Lansdown understands the desire among pension savers for security, but warns: 'The key risk of moving into cash is that you miss the upside when stock markets rise again. Past experience shows that when the market recovers it tends to recover pretty fast.'

Over the last 30 years, the FTSE index has on four occasions grown 40-145 per cent in the year after a significant decline. Over the long term, returns on equities outperform cash significantly. UK cash returns have averaged 1 per cent a year in the last 108 years, compared with 5.3 per cent for UK equities, according to the Barclays Equity Gilt Study 2008, which measures real returns after inflation.

Over the decade to last December, the gap was narrower (2.5 per cent for cash compared with 3.1 per cent for equities). In 2007, cash returns (1.8 per cent) exceeded equities (1 per cent), but experts see this as anomalous and expect equities and other non-cash sectors (such as bonds) to show better returns than cash fairly soon. Those with the least reason to switch into cash now are those with a long time left before needing their pension fund.

McPhail gives three examples of people who have good reasons to go into cash now: those who are nearing retirement and need to shield their fund from risk; the over-50s who have jumped out of a straightforward pension into a drawdown plan, which allows you to take retirement income from a pension fund without having to buy an annuity until you are 75, and who need to get some annual income from it; and people who 'might be sitting on a cash balance because they are looking at market opportunities'.

While these experts are loath to recommend cash right now, there is a growing consensus about the advantages of being invested in government and corporate bonds, for pension and non-pension investors alike, for all or some of 2009. 'This is an excellent time to look at government bonds,' says Lynas. 'And corporate bonds are likely to get better before equities do.'

McPhail is also enthusiastic: 'There is a strong argument for corporate bonds in the next year or so. The level of default is priced in, and yields are 6, 7, 8, 9 per cent.'

Cash, bond and equity funds all qualify for tax relief when they are bought within pension investments. There are, however, charges involved for people who switch funds in Sipps (self-invested personal pensions) and ordinary personal pensions. Charges can be small, but planholders need to watch out for charges, whether for dealing, initial costs or for annual management fees.

Charges are higher on equity than cash funds - also called 'money market' funds - with those for cash typically being zero for the initial charge and 0.5 per cent for the annual charge. While many private investors have dashed for cash in recent weeks, others appear to be out there searching for bargains in equity or fixed-interest markets.

The seven-year switch

At the age of 47, Ian Nelson of Co Durham, pictured, should not have his pension in cash - after all, he might still have 20 years to wait before retirement. However, Mr Nelson is an experienced investor, who understands the dangers of being in cash, and he is planning to retire in seven years' time. He also got himself a reasonable deal, a 5.5 per cent fixed-rate offer from Hargreaves Lansdown before interest rates went down. 'I fully intend to go back into equities,' he says. 'Things might have bottomed out with equities, but you just don't know at the moment.'

As well as thinking about his long-term pension money, Mr Nelson has to invest the proceeds of the convenience store he owned with his brother, which they sold three months ago. Having a large sum to invest and no job for the time being also made him reluctant to take a risk on the stock markets. But he remains 'pretty confident that things will turn around'.

Healthier lifestyles, regulatory changes and the economic crisis have exposed a weakness at the heart of the industry. Chris Tryhorn examines what may prove to be media companies' final undoing – pension funds

We tend to put off thinking about pensions until we can't any longer. That day of reckoning has arrived for a media sector facing an unprecedented advertising slowdown that is savaging profits just as it faces demands for more cash to finance pension funds.

Healthier journalistic lifestyles have increased our chances of living longer and, owing to changes in pensions regulation brought in after the Maxwell scandal, companies have to face up to their responsibilities. Pension funds are also curbing the enthusiasm of potential bidders in sectors – regional newspapers, say – crying out for more mergers.

The scale of the problem is about to be thrown into sharp relief. The expense of ITV's pension scheme is one of the factors weighing on its finances so much that it is considering a merger with Channel 4 and Five. This week, the broadcaster is expected to confirm its deficit – the gap between what it owes and what it owns – has widened from £221m in June last year to around 300m at the end of 2008.

Trinity Mirror – the company whose pensioners were responsible for tightening up the statutory protections for retirement funds following the Maxwell scandal – last week said its deficit had grown from £124.8m to £206.9m during 2008.

Across corporate UK, and particularly at longstanding institutions such as the Royal Mail, BT and British Airways (once called "a pension fund with wings"), the issue has become a pressing problem. Last month the Pensions regulator, which has extensive powers over the post-Maxwell pension regime, warned companies to ensure that they put pensioners' interests ahead of maintaining dividends to shareholders, despite recession pressures.

The problem is particularly acute for older companies with a commitment to more generous defined benefit schemes that typically pay retirees two-thirds of their final salary every year for the rest of their lives. Many of these companies – which have closed their final salary schemes and offer only defined contribution deals – employ far fewer people than they used to but remain saddled with the liabilities of the pensioners they have inherited. And they are living longer, increasing the bill to cover their retirement.

Trinity Mirror, for example, said a 65-year-old male pensioner might now be expected to live another 21.4 years – just two years ago the average projected length of retirement was put at 18.6 years.

Industry experts suggest that this demographic trend is more marked in media companies because journalists have been transformed from alcohol-sodden hacks into health-conscious office-workers in the course of a single generation. "There's a particular problem with media companies, in particular journalists, who had historically been regarded as rather shabby in terms of looking after themselves, with relatively lower life expectancy," says Mark Wood, the chief executive of the pension buyout specialist Paternoster. "All of that has changed so rapidly ... the smoker and drinker stereotypes no longer apply. When a group of people are pretty normal but their predecessors were pretty abnormal, that's [responsible for] a much faster rate of change."

Gauging the health of a pension fund is tricky: the liabilities shift according to actuarial assessments of liabilities, and the assets held to cover them – shares, bonds and cash – rise and fall in value too. So the deficit, or, in good times, a surplus, represents a "snapshot in time", an effort to weigh up the company's capacity to pay pensions to thousands of people for however many years they all end up living.

Nevertheless, the snapshot in time media companies are providing today coincides with an ugly recession and a structural shift away from old media that is imperilling these firms' survival.

The problem has intensified significantly in recent months. The stock market has fallen by more than 40% since June 2007, while record low interest rates mean that any assets held in the bank have to work harder to pay out annuities. If the funding gap grows too wide, there is a danger that companies will come under pressure from trustees to bolster pension funds. After the disposal of assets, such as the Racing Post in 2007, Trinity Mirror agreed with its pension trustees to put in a total of £107.5m as a special pension contribution, a move that has helped to shore up the fund's asset base. The company is putting £35m into pensions next year, stepping that up to £40m-£50m each year until 2014.

"Obviously we'd be better off sitting with a pension scheme without a deficit but given the cash flow we generate, I don't think it's a drag," says the company's finance director, Vijay Vaghela.

Meanwhile, ITV has pledged to inject £30m a year into its pension fund but analysts warn there is a danger that the trustees will call for additional funds. Even if companies can manage to keep their pension commitments fully funded, a large pension fund acts as a major disincentive to potential buyers, who are in no hurry to take on the liabilities.

This is one reason why investors have been deserting media stocks over the past year. Shareholders in ITV and Trinity Mirror might once have hoped for a takeover that could at last make them a return on their investment. But the chances of that seem slim now and the companies' shares have tanked accordingly. "Any foreign purchaser who wants to take over a UK media company with a big pension liability is likely to be put off by that," says Ros Altmann, an independent pensions expert.

"We have the most expensive pensions commitments in the world," she adds. "These are huge liabilities you can never get out of. With such big deficits potential buyers] would need to pay in a substantial sum and that takes money from the business. They would probably look at this and say, 'Forget it – but if you get rid of the pension scheme, come back and talk to us'." For regional newspaper groups, hoping that future mergers can offer a way out, pensions are likely to prove an achilles heel.

Lord Rothermere, the chairman of Daily Mail & General Trust, whose attempt to dispose of regional business Northcliffe was stymied in part by the size of its pension liabilities, recently offered a stark assessment : "Right now, it is hard to see how the industry has got the capacity to consolidate, with both the regulatory framework and in terms of issues revolving round some of the other players," he said. "No one with a final-salary scheme is going to find the circumstances right because they don't want to crystallise their liabilities. That issue has to be ironed out."

At the moment, the only way out is for a company to offload its pension fund to a insurance specialist that thinks it can do a better job. Companies considering this can turn to the likes of Mark Wood at Paternoster, which over the past 18 months has taken on the schemes of Emap and the music group Chrysalis. The problem is that the cost of doing this, in the form of a premium charged by the buyout firm, is getting more expensive – up around 13% on this time last year, according to Wood, partly because the greater likelihood of bonds defaulting is making them pricier.

Wood says many companies want to offload their liabilities but cannot necessarily afford to do so. "A lot of companies are looking at it but have balked at the price," adds Altmann, who forecasts that many British companies will be bankrupted by their pension schemes. This threat is likely to be used by employers who want a regime they currently find so onerous relaxed. Watch this space.