The deficits for FTSE 350 companies’ defined benefit (DB) pension schemes increased by £5 billion since the end of June, according to research by Mercer.

Its Pensions risk survey found that the pension deficits stood at £75 billion at 31 July 2012, compared to £70 billion at the end of June and £61 billion at the end of December 2011.

The research also found:

  • Overall liability value increased by slightly more than 2% over the month to £585 billion at 31 July 2012.†
  • Asset values also increased marginally from £501 billion at 30 June 2012 to £510 billion at 31 July 2012
  • The increase in liability values also comes despite companies contributing between £1 and £2 billion per month towards pension scheme deficits.

Adrian Hartshorn, a partner in the financial strategy group at Mercer, said: “Relatively small changes in investment markets have a very material impact on the financial position of UK pension schemes, more so than the deficit contributions that are being made by companies.

“This highlights the importance of ensuring the investment strategy, and the risk associated with that investment strategy, is affordable and can be supported by the employer’s covenant.”

Ali Tayyebi, head of DB risk in the UK at Mercer, added: “The overall deficit is yet again at its highest month-end figure for the year so far.

“This is despite July being one of the best months in terms of increases in asset values, and long-term market implied inflation falling to its lowest point since a brief period towards the end of 2008.

“The fall in corporate bond yields has been broadly tracking the fall in gilt yields over the year, but corporate bond yields fell more significantly during July. This highlights the highly dynamic environment and windows of opportunity, which may open up or close quickly for risk-mitigation actions.

“In the current environment, reduced levels of inflation might mean that more schemes take the step to increase their level of inflation hedging. With the level of swings seen in recent months in the parameters that drive the relative attractiveness of various options, being prepared to act quickly is key.”

Read more articles on pension scheme deficits