When defined benefit pension deficits first emerged as a significant problem, it happened quickly. New on-balance sheet accounting disclosures, rising longevity expectations and falling bond yields were all contributing factors.

The arrival of the Pensions Regulator in 2005 placed an even greater spotlight on the issue. Investment banks and other advisers have set up varying advisory offerings and financial products to those affected. This financial advice is distinct from actuarial and legal expertise received from longstanding scheme advisers.

However, some commentators argue that such financial advisory services will be short-lived because the problem might evaporate in the next two to three years. Reasons for this include rising interest rates with associated improvement in bond yields and the continued bull-run in the equity markets.

This is a view supported by research from Aon, which found that the total FRS17 deficit for the 200 largest pension schemes has fallen to just £14bn, its lowest monthly level since records began. It also showed that 30% of those pension schemes are now in surplus. While these factors may assuage deficit levels, the pension deficit issue is a long-term issue in need of a permanent new advisory need.

One of the main reasons for this is that the direction of accounting standards surrounding pensions is towards greater prudence and disclosure. Some accountants have commented that FRS17, while an important step in pensions accounting, is notable for permitting ‘pre-booking’ of assumed future equity gains.

Another inherently long-term factor is mortality. Views on mortality differ markedly although it is generally seen as prudent to plan for increasing longevity and if wrong be pleasantly surprised. The financial markets have not yet developed an effective method of managing and trading mortality risk.

Increased focus on employer covenant strength, following the introduction of the scheme specific funding regime of the Pensions Regulator, reminds us that funding risk or the credit strength of the sponsoring employer is not absolute.

There are growing concerns that we may be reaching the top of the credit cycle. Over 6,000 defined benefit pension schemes remain operational. Fuller disclosure of underlying risks and mortality are just some of the arguments for specialised, expert advice on how trustees and sponsor companies can address their deficit and look after the interests of scheme members.

Darren Redmayne is MD and head of European pensions advisory group at Close Brothers