The accounting deficit of defined benefit (DB) pension schemes and other post-retirement benefit plans for the UK’s 350 largest listed companies climbed by £6bn over the course of October.

Mercer’s latest Pensions Risk Survey data revealed that the deficit stood at £94bn at the end of the month, an increase from £88bn at the end of September.

The increase was driven by a £36bn increase in liabilities from £895bn at 30 September 2021 to £931bn at the end of October, caused by a fall in corporate bond yields. Mercer’s figures also showed that asset values increased to £837bn in October compared to £807bn at the end of September. Over the month, the deficit varied from £93bn to £118bn.

Mercer’s Pensions Risk Survey data relates to around 50% of all UK pension scheme liabilities, with analysis focused on pension deficits calculated using the approach that companies adopt for their corporate accounts. The data underlying the survey is refreshed as companies report their year-end accounts.

“Our recent survey with the CBI highlighted that employers continue to feel weighed down by the cost of managing DB pension schemes,” commented Mercer UK wealth trustee leader, Tess Page.

“This month’s data reinforces the challenges still faced by many schemes despite positive momentum on the asset side. Inflation remains above the Bank of England target, and implied future inflation is also elevated.

“In a week when focus is rightly on climate change, this is a timely reminder that interest rates and inflation remain top of the risk list for many pension schemes. Along with planning their climate change risk strategy, Trustees should consider reviewing their approach to hedging assets and liabilities to ensure their strategy remains optimal.”

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