The average FTSE 100 pension scheme allocation to bonds rose by 2 per cent to 64 per cent over the year, with 10 schemes increasing their allocation by more than 10 per cent, JLT Employee Benefits has found.

According to its FTSE 100 defined benefit pension report, scheme investment into bonds has increased from 35 per cent a decade ago as schemes look to tackle “investment mismatching”.

Despite the uptick in bond allocations, UK blue chip sponsors felt a 34 per cent improvement in aggregate funding levels in H2 2017, due to large equity positions and increased sponsor contributions.

JLT Employee Benefits chief actuary, Charles Cowling, said: “FTSE 100 pension schemes have clearly been proactive in taking steps to de-risk their schemes; the significant shift into bonds is certainly an encouraging sign of trustees’ and sponsor commitment to tackling scheme risk in the context of company balance sheets.”

Despite this, Cowling warns of a “rougher ride” for schemes with higher equity allocations due to the volatile market conditions experienced throughout 2018 and suggests schemes are looking at alternative investment strategies.

The estimated scheme deficit fell from £55bn to £41bn in the second half of 2017, as 53 out of the 64 DB schemes in the FTSE 100 reported significant deficit funding contributions.

Despite this, dividends “dwarfed” deficit contributions across the index, with a reported 39 companies that could have settled in full with a payment of up to one year’s dividend.

Total disclosed pension liabilities hit £695bn, up from £681bn the previous year.

Furthermore, three of last years’ top 10 providers of DB liabilities slipped out of the list, bringing to an end their DB provision.

Cowling added that many pension schemes have switched to cash driven investment (CDI) to find a low-risk matching bonds, while offering higher returns through a diverse portfolio of multi-asset credit funds.

“With the growing interest in CDI strategies and the opportunities to lock in gains offered by recent strong equity markets, we expect to see the trend to de-risk pension schemes by switching out of equities to continue, and possibly even gather pace during 2018,” Cowling said.

Last month, data from IC Select found that 12 of the largest fiduciary managers were allocating assets away from equities and into bonds and alternatives, with a “colossal” spread in allocations.

IC Select director, Roger Brown, said: “On average the fiduciary managers are reducing their weight from equities and increasing their weight to alternatives. A lot of it was originally hedge funds but now it's illiquids such as private equity and private debt.”

“The difference in equity investment is colossal.”

According to the data, the amount fiduciary managers are allocating into equity, ranges from 9 per cent to 34 per cent, while illiquid allocations range from 9 per cent to 32 per cent.

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