The pension schemes of Britain’s largest 350 companies tumbled £9 billion into the red last year.
The 28% dip saw pension underfunding increase from £32 billion to £41 billion, according to data from pension monitor Mercer.
The increase was despite company pension schemes clawing their way into the black between May and September.
The plunge into deficit is blamed on falling asset values from £776 billion to £747 billion and anticipated equalisation costs for guaranteed minimum pensions for women.
Liabilities dropped £10 billion from £798 billion at the start of 2018 to £788 billion.
The report for 2018 explained the deficit increased by £24 billion in December as bond yields collapsed.
Le Roy van Zyl, partner at Mercer, said: “2018 was a turbulent year and it is disappointing to see it finish in deficit after finally reaching a surplus for the first time since Mercer began regularly monitoring the position.
“While the return to deficit is unwelcome, we are still in a markedly better position compared to the very large deficit following the 2016 Brexit vote. However, the significant volatility demonstrates the importance of schemes locking in gains when opportunities to take risk off the table arise.”
The firm monitors the performance of around half of all the UK workplace direct benefit pensions.
Andrew Ward, partner at Mercer, added: “2018 was a record year for premiums paid to insurers for buy-ins and buy-outs, with more than £20bn of DB obligations being insured. We forecast nearly one third of a trillion pounds to be paid by UK private sector DB pension schemes over a three-year period, from 2019 – 2021.
“While the direction of travel is clear, it is important schemes consider how prepared they are for any market shock. With continued Brexit related uncertainty, trustees must ensure the risks they’re running are consistent with their objectives and protects their sponsors’ long term financial security.”
FTSE350 pensions are on average 95% funded, while FTSE100 schemes are 97% funded, which puts them slightly better than funding levels at the start of 2018, which were around 95%, according to another pension monitor, JLT Employee Benefits.
Charles Cowling, chief actuary at JLT, said: “2018 was a turbulent year for pension schemes but it was not all negative.”