The aggregate deficit of the around 5,500 defined benefit (DB) schemes in the Pension Protection Fund (PPF) 7800 Index has halved to £51bn at the end of January, when compared to December’s values.
This represents a fall of £52.8bn when compared to the previous month’s figures of £103.8bn.
The funding ratio increased from 93.9 per cent at end of December 2017 to 96.9 per cent.
Defined benefit schemes’ total assets were £1.58trn, while total liabilities were £1.63trn.
There were 3,493 schemes in deficit and 2,095 schemes in surplus, the PPF said.
According to Andy Tunningley, head of UK strategic clients at BlackRock, both bond and equity markets helped the PPF index funding level bounce higher to 96.9 per cent.
He said: “The funding level improvement would have been much greater had the upward trajectory of equity markets not given way to a severe bout of volatility at month end.
“In the end, the loss incurred to pension scheme asset values from falling equity markets was more than offset by a fall in liability values due to rising gilt yields, so the net result was for pension scheme funding levels to improve.”
Equity markets started falling at the end of January, to achieve new lows in the beginning of this month – On 5 February, the Dow Jones dropped 4.6 per cent or 1,175 points — its steepest ever fall in points.
This sell-off is the result of bond yields moving higher, and the medium-term outlook being unpredictable, experts have said.
Mr Tunningley added: “UK pension schemes that have de-risked in recent years are now less susceptible to equity market volatility; on aggregate, PPF 7800 schemes now have a 10 per cent lower portfolio allocation to equities than they did five years ago.
“Meanwhile allocations to bonds and private markets have risen. Holding cashflow generative assets, such as government bonds, credit and private market debt, can help protect pension schemes during an equity shock like the one experienced in January.”
PPF January figures are in line with the values of the remaining DB market.
According to data from JLT Employee Benefits, the UK private DB schemes saw its deficits fall by £26bn since the beginning of the year, to £124bn at the end of January.
Considering only the UK's 350 largest listed companies, the shortfall of these firm’s schemes have fallen £3bn in January, according to data from Mercer.