UK pension scheme average funding levels slid further into the red last month, when global financial markets reacted strongly to the country’s vote to leave the EU, with an extra £89bn (€105bn) of pensions money being wiped out and another 131 schemes falling into deficit.

Figures from the Pension Protection Fund (PPF) showed the aggregate deficit of the 5,945 schemes in the PPF 7800 Index was estimated to have ballooned during June to £383.6bn – its highest level recorded – from a deficit of £294.6bn at the end of May.

The PPF’s update – on the latest estimated funding position of the defined benefit (DB) schemes potentially eligible for entry into the lifeboat scheme – revealed that the average funding ratio for schemes worsened to 78% at the end of June from 81.5% at the end of May.

This is close to the lowest level ever recorded of 76.5% in May 2012.

Total assets at the schemes grew to £1,363.4bn over the month from £1,295.8bn, but liabilities had fallen to £1,747.0bn from £1,590.4bn.

The update may underestimate actual deficits since it is based on schemes’ section 179 liabilities – the premium that schemes would have to pay to an insurance company to take on the payment on PPF levels of compensation – which the PPF says may be lower than full scheme benefits.

The number of schemes in deficit rose to 4,995 by the end of June from 4,864 at the end of May.

Meanwhile, 950 schemes were in surplus at the end of June, down from 1,081 at the close of the previous month.

Andy Tunningley, head of UK strategic clients at asset manager BlackRock, said: “UK pension scheme funding has never been in a more perilous state.”

The big fall in funding to near the lowest ever level came in the wake of the result of the UK’s referendum and the ensuing perfect storm of heightened volatility and collapsing bond yields, he said. 

“Our long-held view is that most pension funds are exposed to too much interest-rate risk and should be increasing their liability hedge ratios,” Tunningley said. 

Tunningley said there were two main reasons why UK pension fund portfolios had to be de-risked in the post-Brexit environment.

He said a significant slowdown in UK growth and material likelihood of a recession next year could threaten the financial outlook of pension scheme sponsors.

On top of this, the path of future UK interest rates is now likely to be even lower for even longer, he said.

“If scheme sponsors are less able to increase future scheme contributions due to financial strain, pension scheme asset risk should be reduced,” he added.

Tunningley said BlackRock had halved its UK real growth forecasts to 1% a year for the next five years, and that market pricing placed the next interest rate rise from current levels toward the end of the decade. 

“Delaying a decision to hedge liability risk is less rewarding, because we do not expect rates to rise in the current uncertain environment, and more risky, as Japan and Europe have shown there could be much further yet to fall,” he said.