The pension deficit for FTSE 350 firms decreased by £9bn in October to £41bn in a volatile month, Mercer has revealed.

As reported in our sister title, Pensions Age, Mercer noted that continued uncertainty surrounding Brexit and market volatility had led to large swings in scheme funding from one day to the next and advised that trustees continue to work to reduce pension risk.

In its latest Pensions Risk Survey, Mercer found that liabilities fell by £14bn from September to £842bn.

However, shrinking asset values were offset by liabilities increasing by £23bn to £906bn during the same period.

Mercer revealed that the falling liabilities and assets were primary driven by increasing corporate bond yields.

Commenting on the findings, Mercer actuary, Charles Cowling, said: “The political turmoil in the UK is set to continue to cause nervousness and volatility in markets. Interest rates are at record lows around the world and could fall even further.

“With strong encouragement from President Trump, the US Federal Reserve recently cut interest rates for the third time this year. Moreover, the Bank of England has indicated that a hard Brexit outcome would see UK interest rates fall, potentially even as low as 0 per cent.

“Trustees and pension schemes also face inflationary worries, and not just from Brexit inspired sterling weakness.

The imminent consultation on the future of the Retail Prices Index could result in its replacement with a Consumer Price Index which could cause problems (and additional costs) for some pension schemes.

“The good news for trustees is that markets continue to hold up well, for now. Now is the time to be vigilant and check for every market opportunity to take pension risk off the table, possibly through the settlement of pension liabilities.”

Mercer’s data relates to about 50 per cent of all UK pension scheme liabilities and analyses pension deficits calculated using the approach companies have to adopt for their corporate accounts. The data underlying the survey is refreshed as companies report their year-end accounts.

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