UK private sector defined benefit (DB) scheme assets have improved by £18bn over the year due to the performance of equities.

According to JLT Employee Benefits, as at 28 February private sector scheme assets now stand at £1,149bn in comparison to £1,131bn last year.

As a result of the performance of equities, UK private sector pension scheme deficits decreased over the year by £19bn to £153bn, increasing the funding level from 87% last year to 88% this year.

JLT Employee Benefits director Charles Cowling said: "Pension scheme funding positions have improved slightly over the year, with better-than-expected returns on equities contributing to a decrease in deficits.

"These gains have been largely offset due to falls in very long-term corporate bond yields, for example those with terms of more than 20 years. The impact of this is most acutely felt by less mature schemes as they are exposed to the liabilities with the longest terms."

Cowling also said that February showed the biggest gap between the Consumer Prices Index (CPI) and the Retail Prices Index (RPI) since March 2011 with it being 1.9% and 2.8% respectively.

He said that companies with a DB scheme had two things to think about. Firstly they should consider whether benefits earned in the future should provide RPI- or CPI-linked pension increases.

Cowling said: "A high level assessment indicates that moving from RPI to CPI could reduce ongoing benefit costs for FTSE 350 companies by up to £500m a year while still providing inflation-proofed benefits for employees."

"Secondly, companies should continue to monitor the appropriateness of their long-term assumption for CPI. Is their assumption appropriate now that the gap between RPI and CPI appears to be widening? Increasing the gap will lead to falls in the liabilities shown in company accounts and reductions in deficits."

First published 04.03.2014

monique_simpson@wilmington.co.uk