The U.K.’s 350 largest companies saw a 21.4% increase in the total deficit of their defined benefit funds, to £119 billion ($162.5 billion) in June, hitting a record high, said Mercer's latest pensions risk survey data.
The drop was driven by a 6.8% increase in liabilities in June, to £813 billion — another record high — which was partially offset by a 4.7% increase in total assets, to £694 billion. The funded status fell to 85.4% as of June 30, vs. 87.1% at May 31.
Over the year, the total deficit increased by 46.9%. Assets increased 11.2%, and liabilities jumped 15.3%, both over the year ended June 30.
Ali Tayyebi, senior partner in Mercer's retirement business, said in a statement accompanying the data that government bond yields fell further than corporate bond yields, meaning liabilities increased by more than 8% on a funding basis. Pension fund trustees typically use government bond yields to set cash contribution requirements.
“The level of market volatility in the last week of June is just an early skirmish in the fight to understand the longer term outlook for the U.K.'s economy and markets. More than ever, the risks and associated opportunities which this creates and the appropriate speed of response will be very specific to the circumstances of individual pension schemes, highlighting the value of frequent monitoring of funding levels and, for some clients, delegated investment management,” added Mr. Tayyebi.
The consultant's data relate to about half of all U.K. pension fund liabilities.
Freya Hutchings contributed to this story.