Defined benefit pension deficits shot up by £71bn to £621bn in January according to Xafinity Consulting’s corporate pension deficits tracker.

The deficit increase represents a 12 per cent rise on December and a 58 per cent increase on last year’s figures.

Xafinity said the sharp rise is down to a 0.5 per cent increase in the outlook for price inflation adding £114 billion to the IAS19 liabilities. This is despite strong asset performance caused by a 380-point rise in the FTSE and a small increase in fixed interest yields during January.

Liabilities rose from £1,650bn in December 2012 to £1,764bn in January 2013. Over the same period, assets increased from £1,100bn to £1,143bn.

Xafinity Corporate Solutions director Hugh Creasy said the steep rise in deficits is largely down to market corrections following the Office for National Statistics’ decision to maintain the existing calculation for RPI, which he said “serves as a very direct and topical reminder of the power of price inflation in driving pension costs”.

He warned: “With Mark Carney’s imminent appointment as governor of the Bank of England, there is growing speculation about the future management of inflation targets. If a burst of price inflation is indeed a necessary price to help ease the debt burden and ignite economic growth then it will be an expensive price for corporate pension schemes."

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