The accounting deficit of FTSE 350 defined benefit (DB) schemes fell by £9bn over July on the back of lower long-term inflation expectations, according to Mercer's latest index.
The firm's Pensions Risk Survey recorded liabilities totalling £865bn at the end of July, down by £4bn from the end of the previous month. Meanwhile liabilities grew from £738bn to £743bn.
Overall, there was a £122bn deficit, and a funding ratio of 85.5%, up from 84.9% at the end of June. The index is based on figures reported by FTSE 350 firms in their year-end accounts, under the IAS19 standard.
Senior partner Ali Tayyebi said trustees need to ensure they strike the right balance when assessing their investment performance.
"The welcome trend of improvements in the deficit over recent months continues during July," he said. "This was largely driven by a small reduction in market expectations for long-term inflation, which reduces the pension liability values.
"The most important question for most schemes should be about getting the right balance between protecting improvements in their funding position and relying on continued outperformance from risk-based or unmatched asset strategies."
Partner and strategic advisor Le Roy van Zyl added many trustees have been "pleasantly surprised" by the performance of their long-term strategic plan.
"There have been a few months of good news," he said. "We are seeing trustees and sponsors with robust governance mechanisms in place taking advantage of these opportunities.
"Under an effective integrated risk management framework, there is now much more freedom to consider a wide range of actions, and many trustees and sponsors are therefore already seeing the benefit come through."
Mercer's analysis comes after PwC's Skyval Index last week recorded a £40bn deficit reduction over the month, based on the funding measure that trustees use to calculate cash contributions needed from sponsors. Meanwhile, the funding ratio hit 78.7% for all private sector DB schemes.
Meanwhile, JLT Employee Benefit's index, which uses the IAS 19 measure for all UK DB schemes, reported a £183bn deficit and 89.6% funding level.
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