The health of pension funds is being savaged by what investors describe as a bubble in the gilt market: pension deficits of FTSE 350 companies have increased by ?20bn this month, according to Mercer Investment Consulting, thanks to a dramatic fall in the real yield on long-dated gilts.

Lane Clark and Peacock, the actuarial group, estimates that the same factor has increased FTSE 100 pension fund liabilities by about ?35bn since June 2005.