The estimated deficit of the FTSE350 companies' DB schemes stood at £75bn at the end of January 2013, representing an equivalent funding ratio of 88 per cent, according to Mercer’s latest data.

This compares to a deficit of £62bn and funding ratio of 89 per cent at the end of December 2012.

Mercer said that the increased market expectation for long-term retail price inflation as a result of maintaining the RPI calculation was “a major contributor to an increase in the value of pension liabilities over the month.

“As a result, pension deficits increased by £13bn, despite the FTSE100 index increasing by nearly 6.5 per cent over the month.”

The findings came following Mercer’s warning last month that FTSE350 companies could see £20bn wiped off their balance sheets as a result of the Office of National Statistics (ONS) plans to retain the method for calculating RPI.

Despite this, the increase in the value of future pension liabilities has been partially offset by a smaller increase in corporate bond yields, Mercer said. The net effect was an increase of liabilities from £588bn to £610bn. Asset values also increased from £526bn at the end of December 2012 to £535bn at the end of January 2013 which has offset some of the increase in the value of liabilities.

Mercer head of DB risk in the UK Ali Tayyebi said: “Increases in equity values and in corporate bond yields have only served to partially dampen the increase in the deficit. This will be frustrating for many as the strong rise in equity values by itself may have raised thoughts about ‘locking-in’ some of those gains if it were not for the fact that this has not come thorough in overall improvements in the funding position.”

Mercer partner in financial strategy group Adrian Hartshorn said: “Given the uncertainty generated by the ONS consultation there were a number of clients that implemented an inflation-only hedge in the fourth quarter of 2012 which has allowed them to lock into what now appear to be very attractive rates of inflation.

"Any risk management action does however need to reflect the scheme and company specific circumstances, so it would be wrong to suggest any particular hedging option was correct for all schemes; a scheme specific analysis and framework is needed to support active decision making.”

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