Rarely has such good news produced so much bad press. Yet the fact that people in the developed world are living longer and that life expectancy is projected to increase further still, has been nothing but bad news for pensions.

The problem is that many corporate pension plans across the US and Europe are afflicted by many of the same problems that plague state-funded systems there, all facing significant funding gaps as their outgoings increase and fresh contributions wane.

Legislation and accounting rule changes meant to address the issue in the US are set to cause a financial shake-up. First, making corporations account properly for their pension gaps threatens to wipe a collective $243bn (£123bn, €182bn) off shareholder equity for companies in the S&P 500 index. Second, a new law requiring pension funds to become fully funded is set to cause large financial flows from stock to bond markets, similarly to what happened after such a reform in the UK in the mid-1990s.

But there is broad agreement that something must be done. Analysts estimate that US corporate pension plans are underfunded by about $450bn. And of the 360 companies in the S&P 500 index that have pension schemes, 297 will be underfunded at the end of this year.

The federal Pension Benefit Guaranty Corporation, which insures corporate pension plans if the sponsoring company is unable to meet its commitments, is itself underfunded by more than $18bn.

By 2030 - as America 's baby-boomer generation enjoys its retirement - the US economy will have to support twice the current number of retirees, with only 18 per cent more workers.

Dallas Salisbury, president of the Employee Benefit Research Institute, argues that these demographic shifts have made the US pensions system "functionally bankrupt". This means retirees with limited savings of their own and facing mounting healthcare costs could outlive their means - or at least the investments that are supposed to pay their pensions.

In August, President George W. Bush signed into law his administration's first attempt to tackle the problem. After months of negotiation in Congress, the White House described the 400-page Pension Protection Act as "the most sweeping reform of America 's pension laws in over 30 years".

Key changes in the act include the requirement that pension plans achieve fully-funded status by 2011. They will also have to increase substantially their insurance payments to the PBGC.

Significantly underfunded plans will have to pay higher premiums but will be given more time to achieve full funding. The airline industry, for example, will have 17 years to balance its pension books.

Pension plans will also have to use more conservative assumptions when putting a value on their assets and liabilities - the investments they have in the coffer, versus the amount they expect to spend supporting pensioners.

Further changes followed from the US accounting rule-making body at the end of September. The Financial Accounting Standards Board mandated that companies report the funding status of pensions and other post-retirement benefits such as healthcare directly on their balance sheets, with effect from year-end earnings reports for 2006. Such information was previously relegated to the small print of corporate earnings statements.

Analysts at Merrill Lynch estimate that the total pension deficit set to appear on the balance sheets of S&P 500 companies at year-end will be about $87bn. (The inclusion of other post-retirement benefits widens the funding gap by a further $310bn.)

Previous accounting rules allowed many of these underfunded plans to appear overfunded, to the tune of about $156bn. Replacing this surplus with the true $87bn deficit will result in a $243bn reduction to shareholders' equity for S&P 500 companies at the end of 2006.

This means that book equity for the S&P 500 will decline by about 6 per cent. And for some companies with big defined-benefit pension plans - General Motors, for example - book equity will be wiped out.

While this is an accounting change rather than a fundamental shift in the economics of the company, it has the potential to create confusion over financial ratios that are sometimes referred to in loan agreements and elsewhere. GM has tried to prepare the market for this change and said none of its debt will be affected.

The justification for the upheaval is the greater reporting accuracy the new rules are intended to deliver. William O'Donnell, strategist at UBS, says: "One primary goal of the recently announced legislative and accounting changes for pensions is that they overlay a new transparency on to pension accounting - which creates a new source of volatility for corporate balance sheets."

This could change the behaviour of pension plan managers. Analysts at UBS, the investment bank, estimate that pension reforms and demographics could cause managers to shift up to $300bn out of stocks and into more stable long-term assets such as bonds. This is based on the assumption that pensions would go from a traditional 60-40 ratio of equities to bonds to a 40-60 split favouring bonds.

"Any dramatic shift in pension asset and liability management could have some measurable influence on the direction of US [interest] rates, the path of credit spreads and the slope of the yield curve," says Mr O'Donnell.

This broad shift has occurred in many countries which have had similar reforms. In the UK , pension funding reform legislation provided pension schemes with a strong incentive to hold long-dated government bonds. Between 1994 and mid-2000, pension funds sold £63bn ($125bn, €94bn) of equities and bought £51bn of bonds, at a time when equity markets were rising. Due to the flow of funds into long-term bonds, short-term interest rates were higher than long-term rates in the UK .

A question for the debt markets is whether this effect helps explain the current partial inversion of the US yield curve. But Brian Carlin, global head of fixed-income trading at JPMorgan Private Bank, argues that while the impact of pension reform will be felt in US debt markets, it will be far less pronounced than it was in the UK .

"There will be a substantial shift into fixed-income but the size and depth of the US market, as well as a longer time-frame for underfunded plans to fund their deficits, mean that the markets should be able to absorb it gradually," he says.