The aggregate deficit of the pension funds of FTSE 350 companies increased 24.3% to £133 billion ($200.2 billion) in January, Mercer said.
The funding level of the 350 largest companies in the U.K. dropped to 83% as of Jan. 31 from 85% a month earlier, according to figures from Mercer’s pension risk survey.
Assets increased 3.1% in the month to £627 billion and liabilities increased 6.3% to £760 billion.
Mercer said in a statement accompanying the data that the deterioration in funding levels was largely driven by an increase in liabilities, due to a “particularly sharp fall in corporate bond yields over the month.”
“The expectation and subsequent announcement by the European Central Bank that it will launch a €60 billion-a-month bond-buying program as it seeks to revitalize the eurozone economy and counter deflation had a significant impact on both government and corporate bond yields,” said Adrian Hartshorn, senior partner in Mercer’s financial strategy group, in the statement. “The €60 billion-a-month bond-buying program was far larger than investors had expected and caused yields to fall as expected demand for bonds increased.”
Mr. Hartshorn added that some pension funds will have already significantly hedged interest rates, and so will see smaller impacts on deficits. “The key issue for clients considering hedging programs is when to start and at what level of interest rates to hedge,” he said.