Defined benefit scheme deficits are at their worst for six years, according to the latest figures from Mercer’s Pensions Risk Survey.

The consultant’s survey calculated that the aggregate IAS19 deficit for FTSE350 companies stood at £108bn at the end of April, up £19bn in just one month. The funding ratio of funds slipped to 84 per cent, from 86 per cent at the end of March, and 88 per cent at the start of the year.

The decline was the result of falling high quality corporate bond yields pushing up schemes’ liabilities.

“The equity markets recovered well from their dip early in the month and asset values increased by around £5bn over April. It will therefore be a surprise and disappointment to many that both liability values and deficits still managed to reach highs not seen for several years,” Mercer’s head of DB Risk in the UK Ali Tayyebi said.

Corporate bonds closely tracked sharp falls in real gilt yields in late March and early April, leaving the difference between yields on credit and market implied price inflation at just over one per cent a year, Tayyebi said. According to the survey, asset values increased from £552bn at 31 March 2013 to £557bn at 30 April 2013. A significant fall in high quality corporate bond yields, however, saw total liabilities increase from £641bn to £665bn over the same period.

“The environment is proving particularly frustrating for many schemes who will have experienced significant improvements in their asset values but who feel that de-risking into gilts does not look particularly attractive at current prices,” Tayyebi added.

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