The aggregate FTSE 350 pension scheme deficit rose to £170 billion ($273 billion) as of Dec. 31, up 183% from £60 billion a year earlier, according to Mercer’s quarterly estimate.
The estimated deficit reflects an aggregate funded ratio of 73% as of Dec. 31, down from an 86% funded ratio at the end of 2008.
Deficits increased last year despite positive investment returns, according to Mercer. Although the decline in corporate bond yields was the biggest factor in increasing liabilities, rising long-term inflation estimates also contributed, according to Mercer.
However, those estimates may be skewed by investors piling into inflation-linked government bonds, Deborah Cooper, a principal at Mercer, said in an interview.
“This may be because investors are paying a premium for protection against the uncertainty in long-term inflation, rather than simply getting an inflation-linked return,” Ms. Cooper said in a news release. “It is common for companies to make some allowance for the impact that uncertainty has on market-derived measures of future inflation.”
Companies will often adjust inflation estimates when calculating pension liabilities — if such an adjustment were applied to Mercer’s estimate, it could shave about £30 billion off aggregate liabilities The inflation estimate or factor used in the overall funding estimate is the spread between U.K. government bonds and U.K. index-linked government bonds. Companies will often shave up to 50 basis points off long-term inflation figures used to calculate liabilities, with 30 bps being most common, according to Mercer.