The pension deficit for FTSE 350 firms increased by £16bn in August to hit a two-year high of £67bn, Mercer has revealed.

In its latest Pensions Risk Survey, Mercer found that liabilities rose by £30bn from July to £914bn due to a 0.3 per cent fall in corporate bond yields.

Although asset values increased by £14bn to £847bn, it was not enough to offset the rise in liabilities.

Mercer Wealth partner and corporate consulting leader, Maria Johannessen, said that stakeholders need to take an “active approach” in monitoring their scheme’s funding position and manage risk accordingly, “as political uncertainty is likely to escalate”.

She continued: “August saw the largest monthly increase in the deficit in 2019, bringing it to highs unseen for nearly two years.

“Under-hedged schemes took the lion’s share of the deficit hit. The overall increase was largely driven by a reduction in corporate bond yields, which meant that liability values increased by over 3 per cent in just one month.”

Mercer actuary, Charles Cowling, added: “Following Prime Minister Boris Johnson’s decision to prorogue parliament, a no-deal Brexit on 31 October looks increasingly likely.

“Facing a potential sterling crisis and a spike in inflation, trustees and sponsors would be wise to prepare for political volatility and very difficult financial markets.

“Combined with downward pressure on interest rates, as President Trump increases pressure on the Federal Reserve to cut rates far more aggressively, the months ahead could see serious implications on scheme finances and risk.

“Trustees will also be looking nervously at to see how employer covenants are affected by a no-deal Brexit. Against a very uncertain backdrop, trustees will have real challenges in making effective decisions.

“It’s important that they examine the risks they are taking and work through various scenarios to establish whether their schemes face material dangers.

“In particular, trustees should look at the investment risks they are running. Many schemes should consider putting in place pragmatic mitigating measures and investment de-risking at the earliest opportunity.”

Mercer’s data relates to about 50 per cent of all UK pension scheme liabilities and analyses pension deficits calculated using the approach companies have to adopt for their corporate accounts. The data underlying the survey is refreshed as companies report their year-end accounts.

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