FTSE 350 company pension deficits shrunk by £9 billion in October, according to new data.
Pensions are now £41 billion in the red, says a report from pension monitor Mercer.
Liabilities – the amount pension schemes are obliged to pay out – dropped £23 billion to £883 billion from £906 billion at the end of September.
Assets – the cash and investments available to meet liabilities – fell £14 billion from a balance of £856 billion in September to £842 billion.
Maria Johannessen, partner and corporate consulting leader in Mercer’s Wealth business, said: “Looking at the month ends we have again seen a decline in the pension deficits for the UK’s largest listed companies. This was driven by falling liability and asset levels as corporate bond yields returned to the levels last seen in early August and inflation expectations fell. Again it was a volatile month, with the deficit ranging from £58 billion to £24 billion in the period.”
The firm also blamed Brexit jitters for the performance – and fears a change in the way inflation is measured could come with a hefty price tag.
Charles Cowling, an actuary at Mercer, said: “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%.
“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 (RPI) could result in its replacement with a Consumer Price Index (CPI) 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.”
The report is based on analysing pension data from around 50% of FTSE350 companies.