Deficits at defined benefit (DB) pension funds in the UK have shrunk this year by around one-quarter, with schemes profiting from higher Gilt yields and the strong performance of growth assets, according to consultancy Aon Hewitt.

The collective pension scheme deficit of companies in the FTSE 350 index fell to well under £300bn (€355bn) by early December from more than £400bn at the beginning of January, Aon Hewitt said, citing data from its Pension Risk Tracker.

Paul McGlone, partner at the firm, said: “2012 and early 2013 saw many pension scheme funding levels decline significantly as quantitative easing saw real Gilt yields settling just under zero.”

But over the last year, and in the second and third quarters of 2013 in particular, rising Gilt yields and the strong performance of growth assets have benefited DB schemes, he said.

“For many pension schemes, this has allowed them to recover their funding positions – and to start to consider opportunities for de-risking their investment strategy,” McGlone said.

The consultancy also said its research found that 20% of UK pension schemes now had a formal trigger strategy in place, either to monitor funding levels or bond yields.

The research covered more than 120 UK pension schemes with between £10m and more than £10bn in assets.

The aim of these triggers is to prompt trustees to review funding strategies when certain agreed limits are breached, the consultancy said.

However, McGlone said not all schemes had a formal system of triggers in place, and some reviewed their funding levels in other ways.

Aon Hewitt said the improvement in pension scheme funding positions seen in the second and third quarters was still happening, and foresaw “further de-risking opportunities” in 2014.

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