The combined accounting deficit of FTSE 350 firms' defined benefit (DB) pension schemes increased by £13bn over the past month, reaching £85bn as of the end of July, according to Mercer’s Pensions Risk Survey.

The rising deficit was attributed to a £42bn increase in liabilities, from £886bn at the end of June to £928bn, which was driven by a fall in corporate bond yields and a small increase in market expectations for future inflation.

This was partially offset by a £29bn increase in assets during the same period, with total assets standing at £843bn at the end of July 2021.

Commenting on the latest findings, Mercer UK wealth trustee leader, Tess Page, stated: “Amid the cautious re-opening of the UK to something approaching 'normal life', the spotlight is still on the contagious delta variant and its impact on re-opening plans and economic growth around the world.

“July has been a reminder that funding levels can go down as well as up, and for schemes that have not hedged their risks there remains high volatility.

“In recent months some schemes have locked into gains in order to get ahead on their long-term journey plans – trustees and employers should therefore be vigilant to such opportunities and prepare for how they will respond to future upside.”

Mercer’s Pensions Risk Survey data relates to about 50 per cent 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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