The UK Pensions Regulator has set new rules that will enable firms to balance the sustainability of their business performance with that of being able to fund the retirement benefits of their employees, the Financial Times reported.

Under the new proposals, companies will have to formally account for the risks if they want to invest more money in their businesses by reducing contributions to underfunded pension schemes. The firms are required to address funding shortfalls in the event that their strategies don't work out as planned.

The regulator's Interim Chief Executive Stephen Soper told the Financial Times, "Investing in sustainable business growth is central to being able to provide a long-term future for any business and its pension plan. The best support for a defined benefit pension is a strong employer and effective trustees working together to manage and balance the risks to their business and scheme."

In the latest rules, the regulator will come up with a "Balanced Funding Objective" or BFO with pension scheme trustees. The BFO will take into consideration the strength of the company's balance sheet, the degree of risk of the investment strategy of the pension fund and the presence of a contingency plan that can address shortfalls if the business encounters challenges.

The regulator said the BFO acts as a benchmark which measures a company's funding strategies. If a firm's BFO goes over its pension funding target then it could divert pension contributions to corporate investment. However, employers and trustees will be compelled to account for all the risks under the new rules.

According to the report, the trustees will have to formally evaluate any new investment that an employer makes in its business before determining if pension contributions can be lowered. Punter Southall consulting actuary Joanne Livingston told the Financial Times, "If you want to control contributions, you are going to have to have better control of investment risk."