Deficits of UK private sector defined benefit (DB) pension schemes have risen on the back of falling bond yields, according to JLT Employee Benefits’ monthly index.

The funding level of all schemes dropped to 87% at the end of June from 91% a year ago, rising to a deficit of £177bn ($303.5bn).

“Pension scheme deficits at the end of June 2014 are higher than a year ago despite a bullish equities market and continued significant cash contributions from sponsoring companies. The main reason behind this is a drop in bond yields. However, if the UK interest rate rises in early 2015, this could facilitate deficit reduction,” said Charles Cowling, director, JLT Employee Benefits.

Assets of all schemes rose to £1.2bn while liabilities increased to £1.3bn.

In the Ftse 100, companies saw the funding levels of their pension schemes drop 2% to 90%, while deficits increased by £20bn to £60bn. Ftse 350 companies took a greater hit on their pension schemes where funding levels fell from 93% to 89% and deficits rose £27bn to £70bn.

Despite the rising deficits Cowling said there was “positive news” for pension schemes given recent developments in regulation. He noted the latest Pensions Regulator’s funding code that recognises the need for sustainable growth of sponsors in order to secure long-term funding for schemes.

“This should give more flexibility to employers in dealing with the conflicting needs of either making higher pension contributions or investing in the business.”

He also commented on the recent changes to the UK Budget: “In addition, the provision for more flexibility for defined benefit schemes included in last week’s Government’s response to the consultation launched after the Budget 2014 could also potentially alleviate the pressure posed by large pension deficits for the scheme’s sponsor.”