The FTSE 350 DB pension deficit increased by 28 per cent in 2018, from £32bn to £41bn, figures from Mercer have revealed.
Its 2018 Pensions Risk Survey claimed that the increase, in spite of schemes being in surplus for five months, was driven by falling asset prices and anticipated GMP equalisation costs.
Mercer found that asset values fell by £19bn, from £766bn to £747bn, while liabilities fell by £10bn, from £798bn to £788bn, from the end of 2017 to the end of 2018.
Additionally, the quoted funding level fell by 1 per cent to 95 per cent for the full year.
Despite these figures, 2018 was a volatile year for pension funds. Schemes were in surplus from May to September, while December alone saw the deficit increase by £24bn to £41bn, almost entirely due to increasing liabilities as corporate bond yields fell.
Commenting on the survey, Mercer partner, Le Roy van Zyl, said: “2018 was a turbulent year and it is disappointing to see it finish in deficit after finally reaching a surplus for the first time since Mercer began regularly monitoring the position.
“While the return to deficit is unwelcome, we are still in a markedly better position compared to the very large deficit following the 2016 Brexit vote.
“However, the significant volatility demonstrates the importance of schemes locking in gains when opportunities to take risk off the table arise.”
Mercer partner, Andrew Ward, added: “2018 was a record year for premiums paid to insurers for buy-ins and buyouts, with more than £20bn of DB obligations being insured.
“We forecast nearly one third of a trillion pounds to be paid by UK private sector DB pension schemes over a three-year period, from 2019-2021.
“While the direction of travel is clear, it is important schemes consider how prepared they are for any market shock.
“With continued Brexit related uncertainty, trustees must ensure the risks they’re running are consistent with their objectives and protects their sponsors’ long term financial security.”