The latest data from Mercer’s Pensions Risk Survey has revealed that the accounting deficit of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies increased from £40 billion at the end of December 2019 to £57 billion on January 31. 

Liability values increased by £34 billion to £916 billion compared to £882 billion at the end of December. 

The increase was primarily driven by falls in corporate bond yields. 

Asset values were £859 billion — an increase of £17 billion compared to the corresponding figure of £842 billion at the end of 2019.

Charles Cowling, partner at Mercer, said: “Although funding positions have deteriorated this month, there are reasons to be optimistic about the outlook for pension schemes.

“The Bank of England just announced that it will not reduce interest rates this month due to signs that the economy is picking up. 

“The IMF expects the UK to be the fastest-growing European economy this year and the CBI’s latest quarterly manufacturing confidence survey showed the biggest three-month jump in confidence since 1958. 

“In addition, ‘Brexit day’ may also remove an important market uncertainty.”

However, Cowling added: “However, there are also reasons to remain cautious. 

“Outgoing governor of the Bank of England, Mark Carney, commented that ‘Evidence of a pick-up in growth is not yet widespread’. 

“Also, there is still a huge amount of work to be done before the post-Brexit trade uncertainties are sorted – and this could drag on for years.

“Many schemes are reducing interest rate and inflation risks, and even reducing longevity and equity market risks down to minimal levels. 

“This is good news. 

“But we shouldn’t be complacent, there are still many potential pitfalls ahead. 

“Trustees should be alert to market opportunities to take risk off the table.”