The funding levels of the UK's biggest pension schemes have grown by 141% during the past year despite economic uncertainty, according to a recent report.

The UK's 200 largest defined benefit pensions, which includes final salary schemes, collectively had an £11bn surplus at the end of March, compared with a £27bn deficit 12 months earlier, Aon Consulting has said.

The group said the impact of the recent stock market falls have been dampened by rising corporate bond yields, which are used to calculate pension scheme liabilities.

Yields on AA corporate bonds have reached a five-year high of nearly 7%, helping many schemes to continue to report a surplus on a company accounting basis.

The figures come the day after consultants Watson Wyatt said the defined benefit schemes of FTSE 100 companies collectively had a record £40.4bn surplus, in part due to high bond yields.

The group said the rise in corporate bond yields have also led to a drop in the cost of companies having their pension schemes bought out by an insurance company.

Marcus Hurd, senior consultant and actuary at Aon Consulting, said: "Over the last few years, a wide range of financial management techniques have been developed to help companies manage pension scheme risk.

"The panacea for many companies has, however, been to extinguish pension scheme liabilities by passing them to insurers at a reasonable price.

"Until recently the price has been prohibitively expensive, but the price for buying bulk pensioner annuities is falling dramatically."

He said it remained to be seen if the insurance market conditions would persist or if this would be remembered as a short window of opportunity.

He added: "Most companies should review pensioner buy-out as a serious option in the current financial climate."

Copyright © PA Business 2008

www.aon.com/uk/en/ (Aon Consulting)