The average accounting discount rate for FTSE 100 pension obligations increased by 0.1% to 4.5%, Barnett Waddingham has revealed.

The consultant said that this is the first increase since 2008 when there was a 0.4% increase from the 2007 rate, and that this signals a reverse in the trend for declining discount rate in recent years.

Martin Hooper, Barnett Waddingham associate said: "We have seen a small increase in corporate bond yields over the year and this has been reflected in an average increase in discount rate used for accounting purposes.

"This, coupled with strong returns from equity investments has seen an improvement funding levels of pension schemes run by the UK's largest companies.

"In the recent past, we have seen a decline in discount rates, contributing to increasing pension deficits. The reversal of this trend is certainly a welcome change."

According to Barnett Waddingham's annual FTSE 100 survey, the average IAS19 funding level was approximately 91% in 2013, which was an improvement from 88% in 2012.

The survey also revealed that the average RPI inflation assumption adopted by the companies surveyed was 3.4% per year, compared to 3% in 2012.

Barnett Waddingham said that the average real salary growth assumption dropped to 0.3% in 2013 (0.5% in 2012), which is likely to be as a result of an increasing number of schemes implementing caps on pensionable salary increases.

First published 25.06.2014

monique_simpson@wilmington.co.uk