FTSE 100 firms have been urged to use corporate cash reserves to de-risk defined benefit (DB) schemes, Capita Employee Benefits has said.

Following recent improvements in gilt yields, the consultancy said that the move would be particularly beneficial for companies.

Capita Employee Benefits said that it has seen increases in longer dated gilt yields in excess of 1% over the last year and that this directly impacts on de-risking costs.

As a result of this favourable situation, Julie Stothard, Capita Employee Benefits director of actuarial, investment and DB consulting, said: "Companies should be actively asking their trustee boards to revisit de-risking: they may be pleasantly surprised at how the markets have moved."

According to research by Capita Asset Services companies are continuing to increase cash reserves, so costs are falling at a time when cash is potentially available, the consultancy said.

Rather than shareholders following their "natural inclination" and distributing cash reserves, research from Grant Thornton found that those companies that de-risked their pension plans benefitted from an average increase of 10.2% in their share price.

Stothard said: "Using cash reserves to de-risk now benefits not only the pension scheme membership but also the shareholders – companies that have successfully taken some or all of this pension risk off the table are simply more attractive to investors.

"This combination of circumstances certainly lends itself to de-risking exercises and we would advise companies to actively investigate the opportunities that exist in the insurance market to remove as much risk as possible from their defined benefits schemes."

First published 18.09.2013

monique_simpson@wilmington.co.uk