Increased investment activity is helping pension schemes survive turbulent market conditions and return to deficit levels similar to a year ago, according to Aon Consulting.

The Aon200 Index, which tracks the surplus or deficit of the 200 largest UK privately-sponsored pension final salary schemes, shows a £9bn improvement over the past month with deficits now standing at £21bn (compared to £30bn in June) and only an £8bn deterioration compared with figures this time last year.

The combination of turbulent market conditions and innovation in the investment products available to pension schemes has led to a shift in the approach pension schemes are taking towards investment strategy as a means of safeguarding the health of their schemes.

Figures from Aon’s own clients show there was a fourfold increase in investment activity during the second quarter of 2008 compared with the first quarter of 2008. The investment switches made by pension schemes reflect two clear trends.

The first is the shift from equities to alternative growth investments and diversified growth portfolios, which target similar returns across a wider range of asset classes and reduce the pension scheme’s exposure to volatility in the equity markets.

The second trend is to exchange low yielding government bonds for higher yielding corporate bonds to take advantage of the higher returns currently being offered by corporate bonds relative to historic levels during credit crunch market conditions.

Marcus Hurd, senior consultant and actuary at Aon Consulting, said: “The credit crunch has been a harrowing experience for most pension schemes in terms of volatility, but as we approach the anniversary of when the UK market started to feel its affects most schemes have survived relatively unscathed.

“The effects of the credit crunch, though, have prompted companies and pension scheme trustees to take a more sophisticated approach to pension scheme investment strategies.

“Increasingly, schemes are shunning equity investments in favour of a wider range of alternatives including diversified growth portfolios. Schemes are also taking advantage of historically high corporate bond yields, caused directly by the credit crunch phenomena, and shifting out of government bonds into the higher yield corporate bond securities.”