The UK defined benefit deficit has fallen by £35bn since the US presidential election and by £200bn since August, Hymans Robertson has revealed.

According to its 3DAnalytics which provides real-time updates to the funding positions of DB pension schemes, the firm noted that the DB deficit has fallen to £825bn from an all-time record high of £1,030bn in August this year.

The deficit level was influenced by rising bond yields, in part due to revived inflation predictions as a result of policy pledges made by president-elect Donald Trump.

Ultimately, the improved pension scheme deficit position could pose a significant opportunity to reduce risk for some DB schemes and underscores how volatile deficits can be, Hymans Robertson suggested.

Commenting on bond yield growth, Hymans Robertson partner Calum Cooper said: “Following a significant rally earlier this year, we’ve been seeing positions in fixed income assets unwind due to emerging signals from the Federal Reserve of higher economic growth and interest rate rises which have been amplified significantly by what the market has been calling the ‘Trumpflation trade’. This has seen increasing allocations to growth-focused assets that are likely to benefit from the expected policies of the President-elect, such as spending on infrastructure, tax cuts and trade protectionist policies.

“If the experience of the past year, and particularly the past six months teaches us anything, it’s that deficits can be extremely volatile. But these huge gyrations in headline funding figures should not knock schemes off course.”

Cooper added that: “A long term focus needs to be maintained through short term political fog and uncertainty. To have that long-term focus, first you need to know what your long-term target is and have a timeframe for meeting it. Schemes need to understand their measures of success, risk and security and look at ways to improve these through evolving their strategy.

“Given this risk and opportunity here, it’s really important that schemes are clear on the level and types of risks they’re running; whether less risk can be taken given recent yield rises; and whether component risks could be better diversified. Overall this should lead to increased resilience to adverse cashflow and balance sheet events.”

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