The UK defined benefit pension deficit has recovered by £60bn to £630bn in October 2016, PwC has reported.

According to the PwC's Skyval Index, the DB deficit dropped to £630bn from a record high of £710bn in August.

The Index showed that deficits were £420bn on an accounting basis, down £70bn from last month.

On a funding basis, deficits equalled £630bn, and £1,490bn on a buy-out basis, a £90bn decrease from the same time in September.

Furthermore, on an accounting level, the deficit fell by £90bn from last month to £420bn.

While this short-term improvement is significant, PwC has advised that pension fund decision-makers should consider various solutions which do not focus solely on short-term volatility, to directly address the underlying problem.

PwC's past research has shown that deficit repair periods can range from one to 21 years, with an average of nine years. Nonetheless, the average has now increased in some cases.

PwC global head of pensions and partner Raj Mody said: “The funding deficit has improved by £60bn this month due to a combination of asset and liability value movements during another volatile month.

“Slight improvements in gilt yields have contributed to the apparent deficit reduction, but liability measurement by gilt yields does not necessarily represent reality, given pension liabilities are mainly affected by longevity and inflation.

“There are plenty of ways to reshape and optimise liabilities in the run-up to members’ retirement. Only offering one option at retirement – to swap a quarter of your pension for a lump sum – is outdated. In this age of freedom and choice, with possibilities such as flexible retirement options, a range of more modern choices can be presented to savers.

“Some companies may want to consider extending the length of time taken to repair the deficits, which will mitigate the sometimes artificial adverse consequences of current low gilt yields, if pension funds are still stuck with outdated measurement methods for their deficit," Mody added.

"In any case, it should not be a one-size-fits-all answer but a scheme-specific consideration.”

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