Pension funds are still under-hedged against movements in interest rates and inflation, despite an improvement in their finances due to a rise in long term interest rates, according to actuaries Aon Hewitt.

John Belgrove, a senior partner at Aon Hewitt, said that closed and frozen pension schemes should be protecting against about 70% of their exposure to falling interest rates. He said the actual level of hedging was between 30% and 40% - a difference of about £400 billion.