The combined accounting deficit of defined benefit (DB) pension schemes for companies in the FTSE 350 fell by £9bn in June to £72bn, according to Mercer’s Pension Risk Survey.

The improved funding position was driven by an £11bn increase in assets, up from £803bn at the end of May to £814bn at the end of June.

However, this was partially offset by a £2bn rise in liabilities, which increased from £884bn to £886bn during the same period.

According to Mercer, the liability increase was driven by a fall in corporate bond yields, offset slightly by a ‘small fall’ in market expectations for future inflation.

Commenting on the findings, Mercer chief actuary, Charles Cowling, said: “Funding levels continue to improve as markets remain favourable, despite the looming threat of inflation and the UK’s challenging emergence from the Covid-19 lockdown.

“This month, inflation hit a two-year high and the Bank of England expects it to rise further. However, the bank still voted last week to hold interest rates at their current record low levels and their quantitative easing program unchanged.
 
“These conditions are challenging for pension schemes and trustees who, with no respite on persistently high pension liabilities, are being called on by TPR to establish a clear path to their long term objective. But with positive market conditions, there are opportunities for trustees to lock into gains and get ahead on this journey.

“Trustees should therefore be vigilant to such opportunities and consider planning now how they propose to meet the Regulator’s new objective.”

Mercer’s Pensions Risk Survey data relates to about 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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