Strong returns and "record levels of deficit contributions" in UK defined benefit (DB) schemes have been overshadowed by an increase in scheme deficits over the year, JLT Employee Benefits (JLT EB) has said.

The reason for this is mainly because inflation expectations have risen sharply JLT EB said, although the picture for individual schemes will "vary significantly" depending on their exposure to inflation risk.

The assets of FTSE 100 companies rose from £459bn at 30 November 2012 to £500bn over the same period this year, however during the course of the year liabilities also increased by £57bn, causing the funding level to drop from 91% to 89%.

The funding level for FTSE 350 companies also dropped from 91% last year to 89% at 30 November 2013 despite a £44bn increase in assets.

When taking all UK private sector pension schemes into account the funding level increased from 86% in November last year to 87% this year as the assets increased from £1,069bn to £1,180bn while the liabilities increased by £111bn over the year.

Charles Cowling, JTL EB director, said: "This is the first year end where FTSE 350 companies have had no choice but to adopt the recently revised version of IAS 19 Employee Benefits.

"The revisions will hit reported profit in the FTSE350 by around £4bn. This should not have an impact on the perceived value of a company as it has no actual impact on cash flows or on a company's balance sheet.

However, some companies allow for the impact of pension finance items above reported Earnings Before Interest and Taxes (EBIT) and so the change will impact on this key accounting measure. There is the potential, where analysts have not taken account of this, for an impact on the company share price. We encourage companies to ensure that they have in place clear disclosures describing the impact so there are no surprises next year."

First published 04.12.2013

monique_simpson@wilmington.co.uk