The 350 largest companies in the UK saw their pension scheme deficits increase by a staggering £25bn over 2013 despite significant employer contributions and strong stock market returns.
According to analysis from human resources company Mercer, pension scheme accounting deficits for FTSE350 firms were £97bn ($158bn, €116bn) at 31 December 2013 - corresponding to a funding ratio of 85%.
The research also revealed deficits are £25bn higher compared to 31 December 2012, when pension deficits stood at £72bn (corresponding to a funding level of 88%) – representing a 35% hike.
But the analysis found there was an improvement in the position over the last month of 2013, with the IAS19 (accounting requirements) deficit reducing from £102bn at 30 November.
"Over 2013 as a whole it has been interesting to see how the three key elements which drive the deficit calculation have independently influenced the deficit," said Ali Tayyebi, Mercer's head of defined benefit pension scheme risk in the UK.
He added: "Deficits increased sharply up to the end of April driven largely by increases in the market's outlook for long-term market implied RPI inflation.
"This was driven in part by the market reacting to the 10 January announcement by the ONS confirming that the RPI calculation would not be changed."
Mercer's Pensions Risk Survey also found the increase in deficits over 2013 comes in spite of UK equities returning 19% over the year and continued significant cash contributions from employers.
The increase in deficits is predominantly driven by the increase in long-term inflation expectations over the year.