Increased bond yields more than offset the impact of falling equity values last month, which Xafinity says is a “salutary lesson” for pension schemes that remain exposed to interest rate and inflation risks.

The pensions and employee benefits specialist’s corporate pension deficits tracker shows the funding gap for UK schemes fell by £84bn over May, finishing at £611bn.

Xafinity attributed the decrease to a 0.25 per cent increase in bond yields over the month. Meanwhile, the FTSE ended the month at 6,583 amid speculation about the Fed reeling back on quantitative easing.

“The sheer size of pension obligations, together with the mathematics of long term financial estimates means that, while equity market news hits the front page, the deficit is far more sensitive to these less well publicised indicators,” Xafinity Corporate Solutions director Hugh Creasy said.

A 0.25 per cent rise in yields equates to the FTSE falling 1,000 points, he added.

“This will, of course, make interesting reading for many FDs looking to report their mid-year disclosures at the end of this month.”

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