The aggregate surplus of FTSE 350 companies’ defined benefit (DB) pension schemes fell to £38bn at the end of March 2023, after market turbulence following stress in the banking sector put a “dent” in schemes’ funding levels, analysis from Mercer has revealed.

According to Mercer’s Pensions Risk Survey data analysis, the present value of liabilities increased from £589bn on 28 February 2023 to £605bn at the end of March 2023.

This increase was attributed to a fall in corporate bond yields, although Mercer noted that this was offset to an extent by a small rise in future implied inflation expectations.

The rise in liabilities was also offset by an increase in asset values over the month to £643bn, compared to £636bn at the end of February 2023.

Commenting on the "noticeable reduction" in the aggregate surplus, Mercer partner, Matt Smith, explained that the market turbulence caused by stress in the banking sector put a dent in the progress of schemes’ funding levels over March, warning that 2023 seems likely to bring further volatility.

He continued: “For trustees and sponsors the deterioration at the end of March is unlikely to be helpful news; particularly those schemes who will be carrying out formal funding valuations at this date.

“For these schemes the last funding assessment (31 March 2020) was carried out when markets were distorted by short-term effects arising due to Covid-19 – three years on, many may have been expecting more stable conditions to inform the assessment but the opposite looks true.

“2023 seems likely to bring a further period of volatility. Any highs and lows may bring threats and opportunities and we expect trustees will wish to consider and understand the key risks that can damage a plan in this environment.”

Mercer’s Pensions Risk Survey data relates to approximately 50 per cent of all UK pension scheme liabilities, with analysis focused on pension deficits calculated using the approach companies have to adopt for their corporate accounts.

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