The collective FTSE 350 pension scheme deficit hit £36bn over October in the “largest swing in month end deficits” since August 2016, Mercer has said.

According to its Pension Risk Survey for October published today, 5 November, FTSE 350 pension schemes declined by £39bn, having achieved a £3bn surplus at the end of September.

Mercer said that £15bn of the deficit could be attributed to the Lloyds High Court judgment, after it was ruled that the bank must equalise pension benefits for men and women in relation to guaranteed minimum pensions (GMP).

Commenting on the results, Mercer senior partner, Adrian Hartshorn, said: “Such equalisation will potentially increase the benefits paid to members and liabilities of schemes.

"Preliminary analysis following the Lloyds High Court judgment has suggested an increase to liabilities of between £15bn and £20bn.”

The funding level fell from 100 per cent to 95 per cent, with liabilities increasing from £764bn to £795bn, also driven by a fall in corporate bond yield and “an increase in market implied inflation”. Asset values fell from £767bn to £759bn.

Hartshorn added: “Whilst the onus is on individual trustees and sponsors to understand the particular circumstances of their scheme and act accordingly, our analysis suggests that there is a once in a lifetime opportunity to simplify schemes, reduce ongoing administration costs and reduce buy-in and buy-out costs for schemes that follow that path.”

Mercer DB strategist and partner, LeRoy Van Zyl, said that given uncertainty facing the UK and its departure from the EU, trustees must move to evaluate the potential impact on their sponsor.

The Lloyds ruling is expected to cost the bank up to £150m, with the cost having previously been estimated to be around £500m.

According to Royal London director of policy, Steven Webb, the government and regulators need to “act quickly” to clarify what the recent ruling in the Lloyds Bank case over GMPSs means for pension transfers.

Webb has called for the Department for Work and Pensions, the Financial Conduct Authority and the Pensions Regulator to provide a public statement to clear up confusion in the pensions market.

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