Top UK companies defined benefit pension deficits decreased by £2bn over the year to the end of January because of better-than-expected returns on equities, according to a report by pension experts JLT
The deficit for FTSE 100 and 350 schemes fell from £168bn in January 31 2013 to £166bn this year, the firm said. FSTE 100 companies' DB pension deficits stood at £59bn, while FSTE 350 company schemes were £68bn, JLT said.
Total assets stood at £1,123bn, with total liabilities of £1,289bn, when measured using IAS19 accounting rules.
However, the firm said these gains had been largely offset due to falls in long-dated corporate bond yields, such as those with terms of more than 20 years. The impact of this would be felt by less mature schemes as they are exposed to the liabilities with the longest terms.
JLT director Charles Cowling said: 'The relatively benign financial conditions we enjoyed in the third quarter of 2013 have been shaken up by the economic events of the last few days.
'Ben Bernanke's final act as the chairman of the US Federal Reserve was to oversee the continued winding down of the central bank's monthly bond purchases. The $85bn-a-month stimulus was reduced to $75bn in December and $65bn at the end of January.
'The impact on long-term interest rates remains to be seen but the gradual removal of QE [quantitative easing] is likely to create an upward pressure on interest rates and a corresponding decrease in pension liabilities.'
The expectation of interest rate rises in the UK and the US contributed to further instability in emerging economies with capital outflows, Cowling said. Subsequently, currency weaknesses 'plagued' a number of countries including India, South Africa, Turkey and Argentina.
'The last few days has seen a number of these countries' central banks raising interest rates to try and combat this, which has increased volatility in world stock markets,' he continued.
'The last week has illustrated the challenges that face pension scheme trustees when formulating investment strategies for their pension assets. These short-term fluctuations are linked to medium- or even long-term changes in market expectations and thus the value placed on pension scheme.'