The latest data from Mercer’s Pensions Risk Survey shows that the accounting deficit of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies finished the year at £76 billion.

This accounting deficit is up from £70 billion at the end of 2020 but and £41 billion at the end of 2018.

Liability values were little-changed, falling from £914 billion to £913 billion, but asset values fell from £844 billion to £827 billion.

Mercer warned that pension trustees “will need to keep a close eye on the strength of employer covenants and it is possible that we will see more calls on the Pension Protection Fund in 2022” and that while some pension schemes have kept their heads comfortably above water in 2021 “others are barely staying afloat.”

Tess Page, Mercer UK Wealth Trustee Leader, said: “Anyone comparing December 2020 with December 2021 would conclude that UK pension deficits were stable and plain sailing.

“However, this belies the rocky ride across the period — 2021 was another strange year, and we saw bond yields and investment markets jumping around a lot, and considerable debate around future inflation …

“That said, given the ongoing pandemic and considerable economic uncertainty, schemes have arguably made it through so far with relatively little damage.

“Looking ahead to 2022, we see some looming risks.

“Firstly, the path of monetary policy is far from clear. The recent global rise in inflation is not now seen as ‘transitory’, though the scale is perhaps amplified by temporary factors and base effects.

“Will central banks act on monetary policy or just continue to talk?

“Rising inflation could also intensify the political and socio-economic tensions between the ‘winners’ and ‘losers’ from the pandemic, undermining market confidence in the independence of central banks …

“Secondly, as our Prime Minister reminded us on the recent press conference, the pandemic is far from over.

“There is still much that is unknown about the Omicron variant, and further strains and waves of the virus may occur.

“Many businesses have already suffered very substantial shocks, that threaten the strength of the employer covenant available to support the pension scheme.

“Trustees will need to keep a close eye on the strength of employer covenants and it is possible that we will see more calls on the Pension Protection Fund in 2022, particularly as Government support schemes tail off …

“Overall, whilst some pension schemes have kept their heads comfortably above water in 2021, others are barely staying afloat.

“Schemes that have not yet managed their significant risks (notably inflation, interest rates, and growth asset risk) will see volatile funding level movements from month-to-month.

“2022 therefore brings opportunities to map out a clear plan for risk management – with the new Funding Code and Single Code of Practice on the horizon there has never been a better time to do so.”