UK – Deficits across UK pension funds increased by £50bn (€57bn) to the end of July, according to figures compiled by Xafinity.

The firm said estimated IAS 19 deficits had increased by £60bn to more than £1.7trn by the end of last month, despite a rise in assets to more than £1.1trn on the back of stronger equity markets.

However, Xafinity added in its analysis that liability figures had worsened due to the “steady upward ticking” in inflation expectations in recent months.

Commenting on the changes, Hugh Creasy, director at Xafinity Corporate Solutions, said: “Managing the financial risks of the changing outlook for interest rates and inflation is the greatest control sponsors can have over the size of the deficit on their balance sheet.

“The use of leveraged bond funds has allowed sponsors to achieve this control and is now well-established in the marketplace,” he added.

“Even inflation risk – for so long the elephant in the room – is now finally being recognised and consciously addressed.

“Controlling these investment risks does not mean the end of the deficit, but it can mean the end of the increases in the deficit.”

In other news, Buck Consultants has warned the Pensions Regulator against influencing employers’ choice for pension scheme.

Discussing guidance published last month that cautioned against the launch of new trust-based pension funds unless the employer would be able to guarantee 1,000 members, Buck’s head of pensions policy Kevin LeGrand said it marked part of a “continuing campaign” to increase scale in pension arrangements.

He added that the shift towards large-scale funds had been “steadily gathering pace” in the past few years and pointed to comments from politicians that scale was a desirable goal for the sector to achieve.

The UK’s opposition Labour party has most recently spoken out in favour of regulatory intervention to achieve scale.

Similarly, TPR chairman Michael O’Higgins warned late last year that economies of scale would be a necessity for any pension arrangements used for auto-enrolment.

LeGrand dismissed the suggestion that standalone trust-based funds were only suitable for companies with a large workforce.

“The current statements are based around a simplistic assessment of straight financial cost, ignoring other relevant benefits, such as closer ties between employer and employees through having a single-employer scheme,” he said.

“This generic ‘rush to the bottom’ will only undermine genuine efforts to produce workplace pension arrangements that give good member outcomes.”

The regulator’s comments, contained within a short guide for employers on how to select a good auto-enrolment compliant fund, said evidence had shown it would be difficult for the majority of employers to launch a cost-effective trust-based solution with fewer than 1,000 members.

Discussing master trusts and group personal pensions, the guide added: “Because of [the] size and the way they operate, they generally cost less and require less involvement from employers compared with other schemes.”