The funding position of the FTSE 350 pension funds showed a slightly higher surplus at the end of July compared to June, according to Mercer’s latest Pensions Risk Survey.

Mercer’s analysis revealed that equities performed well while bond yields and future market expectations of inflation fell slightly over July.

Data used for the monthly Pensions Risk Survey from Mercer relates to approximately 50% of all UK pension scheme liabilities, with analysis focused on pension deficits calculated using the approach companies adopt for their corporate accounts. The data underlying the survey is refreshed as companies report their year-end accounts.

The latest figures revealed that the accounting surplus of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies increased to £54bn at the end of July.

Mercer also reported that the present value of liabilities increased from £578bn at 30 June to £583bn at the end of July, driven by a fall in corporate bond yields and offset by a fall in market implied inflation. Asset values increased from £627bn to £637bn at the end of the month.

Partner at Mercer, Matt Smith, commented: “The Government has been looking for ways to increase DB pension schemes’ investment in what it calls productive finance to support UK growth. The Pension Regulator’s (TPR’s) new DB funding code, as consulted upon at the beginning of the year, would pull schemes in the opposite direction.

“Some are now questioning the need for the new DB funding code, with the resurgence of strong funding positions and surpluses. But I don’t expect it to disappear entirely. Since the Mansion House announcements, TPR has stated it’ll clarify how its code will accommodate investment in growth assets for open and immature schemes.

“This leaves us with uncertainty about when the new DB funding code will come into force and what it will say when it does.”

Smith added: “At a time of heightened global and UK macroeconomic uncertainty, strong governance, clear objectives and rigorous risk management are all crucial – this is equally true for pension schemes and businesses.

“Trustees and sponsors who take the time to understand the current draft of the DB funding code, as well as where they might be currently deviating from it, will be better positioned to navigate whichever direction the code ultimately takes.”

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