Total deficits of FSTE 100 defined benefit pension schemes fell by around £6bn to £37bn in the year to the end of June, actuarial consultants LCP has said.
The firm's annual Accounting for Pensions report, published yesterday, examined DB schemes of FTSE 100 companies amid the changing regulatory environment and found that they had total liabilities of £512bn, against assets of only £475bn.
The general improvement in funding levels was largely due to strong investment returns over 2013, particularly on equities, and a slight increase in corporate bond yields, according to the report.
The fall in deficits came even as contributions paid by FTSE 100 companies reduced from £21.9bn in 2012 to £20.2bn last year. This was the result of a significant reduction in deficit contributions as firms used other innovative ways of provide security to schemes such as 'buy-in' and longevity swap transactions at unprecedented levels. According to the report, 38 FTSE 100 companies provided additional security to their pension schemes through guarantees, pledges or charges over assets.
This fall took place also despite an increase in pension scheme membership of auto-enrolment, the consultants found.
The report also examined the defined contribution pension reforms announced in the Budget in March, which it said had made 'the pension outlook is as bright as it has been for many years'.
The reforms announced by Chancellor George Osborne had made saving for retirement more attractive, but there were still some policy challenges for government to overcome before changes could be implemented in full. These included determining how the planned free guidance for all DC pension scheme members at the point of retirement would work.
The consultants also noted that the Scottish independence referendum on September 18 could 'cause a headache for some companies'. A 'yes' vote could result in more stringent funding requirements in the way the UK's largest companies run their pension schemes.
Publishing the report, LCP partner Bob Scott said: 'This has been a remarkable year for pensions. Even before the budget, companies faced a period of upheaval as they came to terms with legislative changes introduced in the past four years,'
'Companies have made huge changes to their pension schemes in recent years. All the signs from our latest report point to the likelihood that we see plenty more changes over the coming years as well.'