The aggregate deficit for defined benefit (DB) schemes is estimated to have increased to £107.7bn at the end of October, from £38.7bn the month before.
The PPF 7800 Index, the Pension Protection Fund’s index for the UK’s 5,588 DB pension schemes, showed the position has worsened from a year ago, when a deficit of £87.7bn was recorded at the end of October 2017.
The funding level of schemes decreased from 97.7 per cent to 93.6 per cent at the end of October 2018 and was lower than the 94.7 per cent recorded in October 2017, the PPF’s latest report showed.
Over the month of October 2018, liabilities increased by 2.6 per cent as gilt yields fell while assets decreased by 1.6 per cent because of lower equity prices.
Andy Tunningley, head of UK strategic clients at BlackRock, said the tripling of the aggregate deficit was driven by falling asset prices because of market volatility.
He said: "Equity markets fell to levels not seen since the beginning of the year, driven by tighter financial conditions and elevated worries about the impact of heightened U.S.- China trade tensions, which also sent credit spreads wider.
"For pension schemes, asset falls were compounded by liabilities rising due to declining gilt yields and increased inflation expectations reinforcing our call for trustees to build greater resilience into their portfolios."
Within the index, total scheme assets amounted to £1.6trn at the end of October 2018 while total scheme liabilities were £1.7trn.
Mr Tunningley said that throughout October, those schemes with well-balanced and managed strategies fared better and their funding levels may even have increased if they had sufficient hedging and dynamic growth portfolios.
He said: "Those schemes which had taken advantage of funding level improvements earlier in the year by de-risking will be sitting happier than those which hadn’t."
The aggregate deficit of all schemes in deficit at the end of October 2018 was estimated to have increased to £212.8bn from £170.3bn at the end of September 2018.
At the end of October 2017, the equivalent figure was £196.7bn. At the end of October 2018, the total surplus of schemes in surplus decreased to £105.1bn from £131.6bn at the end of September 2018.
At the end of October 2017, the total surplus of all schemes in surplus stood at £109bn.
Mr Tunningley suggested recent volatility highlighted now was the time to look beyond benchmarking to provide protection for tail risks.
He said: "Instead, schemes should be looking for more diversified, dynamic and outcome-oriented approaches to minimise the impact of these risks. Assets such as a diversified growth fund or multi-asset credit funds which aim to minimise market downturns whilst still capturing upside may be beneficial in this context.
"Assets of this nature will become increasingly important as schemes mature and pay out more as the path of returns becomes more crucial," he said. "Falling behind the funding plan could be very painful, particularly in light of concerns around strength of sponsors and therefore covenants in the medium term."
