The defined benefit pension deficit for the UK’s 350 largest listed companies has fallen from £160bn at the end of August to £152bn at the end of September, Mercer has reported.

According to Mercer’s Pension Risk Survey, while corporate bond yields increased over the month, the benefits were largely offset by a rise in market implied inflation. A rise in corporate bond yields alone in September would have reduced liabilities close to 4.5 per cent, equivalent to around £40bn.

Asset values fell by £5bn at 30 September 206 to £720bn from £725bn the previous month. Liability values also decreased by £13bn from £885bn to £872bn.

Mercer’s data relates to about 50 per cent of all UK pension scheme liabilities and analyses pension deficits calculated using the approach companies have to adopt for their corporate accounts.

Mercer Retirement business senior partner Ali Tayyebi said: “The net change in deficits from the start to the end of September has been relatively small compared to recent months but it does buck the trend of the straight increase in deficits month on month since February. Even so, deficits have increased by over £100bn since the start of the year.

“As we approach the accounting year end for many companies we are getting nearer to the time that these deficits will now be crystallised on the balance sheet.”

Mercer Financial Strategy Group senior consultant Le Roy van Zyl added: “September was another very volatile month in pension scheme financing. This volatility again underscores that schemes positioned for taking advantage of (frequently short lived) improvements in equity markets, interest and inflation rate market experience will have had valuable de-risking opportunities in recent months. Schemes who were able to transact are those that had pragmatic monitoring and execution frameworks in place.

“When deciding the best route forward, trustees and sponsors must clearly consider taking material steps to achieve cost-effective risk management; many clients have benefitted from a series of small but incremental changes over the course of the year."

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