The accounting deficit of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies increased from £40bn at the end of December 2019 to £57bn on 31 January, new data from Mercer revealed.

Results from Mercer’s Pensions Risk Survey showed that liability values increased by £34bn to £916bn, compared to £882bn at the end of December. Mercer suggested the increase was primarily driven by falls in corporate bond yields.

The data also showed that asset values were £859bn during the month – which was an increase of £17bn compared to the corresponding figure of £842bn at the end of 2019.

Mercer said that its Pensions Risk Survey data relates to about 50% of all UK pension scheme liabilities and analyses pension deficits calculated using the approach that companies must adopt for their corporate accounts.

Mercer partner, Charles Cowling, suggested that although funding positions had deteriorated this month, there were reasons to be ‘optimistic’ about the outlook for pension schemes.

“The Bank of England just announced that it will not reduce interest rates this month due to signs that the economy is picking up,” Cowling commented.

“The IMF expects the UK to be the fastest-growing European economy this year, and the CBI’s latest quarterly manufacturing confidence survey showed the biggest three-month jump in confidence since 1958. In addition, ‘Brexit day’ may also remove an important market uncertainty.

“Many schemes are reducing interest rate and inflation risks, and even reducing longevity and equity market risks down to minimal levels. This is good news, but we shouldn’t be complacent – there are still many potential pitfalls ahead. Trustees should be alert to market opportunities to take risk off the table.”

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