The Pension Protection Fund (PPF) has revealed that the aggregate funding position of defined benefit (DB) funds in its universe has improved to a deficit of £15.1bn at end February 2010, a huge improvement from end January's results of a deficit of £51.9bn.

The total deficit of all schemes in deficit also improved, from £102.8bn at the end of January 2010, to £79.5bn at the end of February. Total surpluses of schemes in surplus also increased to £64.4bn, from £50.9bn at the end of January 2010, and compares to £13.3bn in February 2009.

Towers Watson's head of defined benefits, John Ball, commented on the huge difference a year can make: "Funding positions have improved because of the dramatic rebound in equity values since the FTSE 100 index reaches its nadir on 9 March 2009 and because pension funds can now earn higher interest rates by lending money to the Government or buying up existing Government debt. The PPF also took a fresh look at the prices insurers charge to take on pension obligations and found they had come down.

Together, these changes mean that the £200bn of combined pension fund deficits that the PPF measured 12 months ago has all but disappeared."

Ball said the bad news for companies, however is that the deficits they must report in their accounts are calculated differently, and often will be worse now than over the past 12 months, while shortfalls against the funding targets have not improved as much.

"Companies have been left more shaken than exhilarated by the rollercoaster ride their pension schemes have taken them on, and more are looking seriously at how they can lock in gains as opportunities arise and reduce the risks posed by volatile financial markets and by uncertainty about how long people will live."

He added that the PPF will be facing the fact that, should their schemes go bust tomorrow, 70 per cent will be looking towards the PPF for support, and the combined deficits here are more than 100 times bigger than the PPF's annual levy income. "So it is not out of the woods yet, but it could soon look a lot healthier."

Ball concluded that the PPF is should start building up a "war chest" by 2014, and is preparing for the worst.

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