The accounting deficit of FTSE 350 firms’ defined benefit (DB) pension schemes fell by £4bn in January to £66bn, Mercer’s latest Pensions Risk Survey data has revealed.

Total liabilities declined by £25bn to £889bn by the end of January 2021, however this was offset slightly by asset values also decreasing during the period, by £21bn to £823bn.

Mercer warned that, due to the coronavirus pandemic, there was more economic uncertainty ahead and urged trustees to monitor risk accordingly.

“The UK is heading into its second ever double-dip recession. Although the Bank of England warns that the UK economy is facing its ‘darkest hour’, surprisingly, we have seen positive news on pension funding,” said Mercer chief actuary, Charles Cowling.

“There are still potential storm clouds looming for pension schemes however. In an attempt to boost the Covid-ravaged economy, the Bank of England Monetary Policy Committee raised the possibility of negative interest rates for the first time in UK history.

“Negative rates would not be good news for pension schemes who are already struggling with increasing liabilities caused by record low rates.”

Cowling added that the positive news on vaccines may “not be enough” for companies and industries that were hit badly by the pandemic.

“The Pensions Regulator is encouraging trustees to monitor employer covenants ever more closely,” he continued. 

“As we emerge from lockdown, there are going to be many businesses fighting for survival as government support dwindles. Pension schemes may well suffer so trustees should closely monitor their risks and should consider taking opportunities to reduce them when and where possible.”

Mercer’s Pensions Risk Survey data relates to approximately 50 per cant of all UK pension scheme liabilities, with analysis focused on pension deficits calculated using the approach companies have to adopt for their corporate accounts.

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