The aggregate accounting deficit of FTSE 350 companies’ defined benefit (DB) pension schemes fell by £28bn during December, ending the year at £76bn, according to Mercer's latest Pensions Risk Survey.

It revealed that liability values fell from from £962bn to £913bn during the month, although asset values also declined, from £858bn to £837bn.

However, whilst the deficit had fallen compared to November, it had increased year-on-year, with an aggregate deficit of £70bn recorded at the end of 2020 and of £41bn as at 31 December 2018.

Liability values saw little change during 2021, falling from £914bn to £913bn, while asset values declined from £844bn to £837bn.

The average funding level remained static year-on-year at 92 per cent.

Mercer UK wealth trustee leader, Tess Page, warned that whilst anyone comparing December 2020 with December 2021 could conclude that UK pension deficits were stable and plain sailing, this “belies the rocky ride across the period”.

“That said, given the ongoing pandemic and considerable economic uncertainty, schemes have arguably made it through so far with relatively little damage,” she added, suggesting, however, that there are some “looming risks” ahead in 2022.

In particular, Page warned that the path of monetary policy is “far from clear”, arguing that the recent global rise in inflation is not now seen as transitory, although the scale is "perhaps amplified by temporary factors and base effects".

She also said that rising inflation could intensify the political and socio-economic tensions between the 'winners' and 'losers' from the pandemic, potentially undermining market confidence in the independence of central banks.

“Secondly, as our Prime Minister reminded us on the recent press conference, the pandemic is far from over,” she continued.

“There is still much that is unknown about the Omicron variant, and further strains and waves of the virus may occur. Many businesses have already suffered very substantial shocks, that threaten the strength of the employer covenant available to support the pension scheme.

“Trustees will need to keep a close eye on the strength of employer covenants and it is possible that we will see more calls on the Pension Protection Fund in 2022, particularly as government support schemes tail off.”

More broadly, Page emphasised that whilst some schemes have kept their heads comfortably above water over the past year, "others are barely staying afloat".

"Schemes that have not yet managed their significant risks (notably inflation, interest rates, and growth asset risk) will see volatile funding level movements from month-to-month," she said.

“2022 therefore brings opportunities to map out a clear plan for risk management – with the new funding code and single code of practice on the horizon there has never been a better time to do so.”

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. The data underlying the survey is refreshed as companies report their year-end accounts.

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