The accounting deficit of defined benefit (DB) pension schemes for FTSE 350 companies rose from £52bn at the end of April 2020 to £72bn on 29 May, according to Mercer.

Pensions risk survey data from the company showed that the deficit increase was driven by a £36bn jump in liability values, from £897bn to £933bn, amid falls in corporate bond yields.

A £16bn rise in asset values from, £845bn to £861bn, slightly mitigated the impact of the liability increase, although the deficit level still climbed to its worst point in more than two years.

Mercer chief actuary, Charles Cowling, said: “Pension deficits, as measured by accounting rules for company accounts, have worsened in the last month and compared to 12 months ago, as market turmoil continues to affect pension schemes. CPI inflation dropped this month down to just 0.9 per cent due to the impact of lower oil and energy prices.

“The governor of the Bank of England has given a strong indication that the UK may soon be facing negative interest rates. He stated that officials were actively considering all options to help see the economy through a deep recession.”

Cowling added that trustees “need to understand the challenges facing businesses and the level of cash contributions that employers can truly afford”, while also calling for them to “particularly look to reduce investment risk”.

He concluded: “Those that have been holding back from fully hedging interest and inflation risks should consider taking advantage of market opportunities and further reduce risk wherever possible.”

Mercer’s survey data relates to around 50 per cent of all UK pension scheme liabilities and analyses pension deficits calculated using the approach companies have to adopt for their end of year accounts.

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