Big cut in funding shortfall

The schemes, which include final salary pensions, had a collective deficit of 20.4bn at the end of last month, well down on the 53.5bn black hole they faced in August, according to the Pension Protection Fund.

The improvement was driven by a combination of rising stock markets, which boosted the value of schemes' assets by 3 per cent, while a rise in gilt yields reduced their liabilities by 0.5 per cent.

A total of 4,420 schemes, around two-thirds of all defined benefit pensions, remained in deficit at the end of the month – around 300 fewer than faced a funding shortfall at the end of August and significantly down on the 5,066 schemes in this position in September 2009.

The collective deficit faced by schemes that were in the red also improved during the month, dropping from 105.3bn to 83.6bn.

The funding position of all schemes was significantly better than in September last year, when they faced a collective deficit of 98.8bn, although much of this improvement has been brought about by a change to the way liabilities are calculated.

Rising life expectancy and investment volatility have made defined benefit pensions increasingly expensive to offer.