Mercer’s Pensions Risk Survey data shows that the accounting deficit of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies increased from £127bn at the end of November to £137bn on 30 December 2016.

At 30 December 2016, asset values were £720bn (representing an increase of £19bn compared to the corresponding figure of £701bn at 30 November 2016), and liability values were £857bn (representing an increase of £29bn compared to the corresponding figure of £828bn at the end of November).

The consultancy says both liabilities and deficits have increased significantly compared to the end of 2015 when assets were £634bn and liabilities were £673bn with a corresponding deficit of £39bn.

Alan Baker, UK DB risk leader for Mercer, said: ‘After a very challenging year, pension deficits increased again and end the year more than three times higher than the end of 2015 at £137bn.

‘This continues to put real pressure on any risk management plans and will require trustees and corporate sponsors to work closely together to establish the right framework to monitor and manage those risks.’

In its analysis Mercer highlighted that corporate bond yields fell by more than 100 basis points over 2016, increasing liabilities on companies’ balance sheets. Pension deficit contributions and positive asset returns have been offset by this fall in corporate bond yields and the rise in inflation expectations.

Le Roy van Zyl, a Mercer Senior Consultant, said: ‘Pension scheme trustees and sponsors face the new year with significant uncertainty. Brexit is likely to move beyond a mere intention, and the effect of new leadership in the US will become clear - not to mention other major events such the French presidential elections.

‘If we look at how volatile conditions have been, and how volatile they may well continue to be, schemes will have to be responsive on a variety of issues. In this environment, best outcomes will be achieved by tackling covenant, funding and risk management together. It will be especially important to focus on future cashflow requirements in different scenarios.’

Mercer says its data relates to about 50% 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.

The consultancy estimates the aggregate combined funded ratio of plans operated by FTSE350 companies on a monthly basis. This is based on projections of their reported financial statements adjusted from each company’s financial year end in line with financial indices. This includes UK domestic funded and unfunded plans and all non-domestic plans.