The deficit of all UK private sector defined benefit (DB) pension schemes has increased by £71bn over the last 12 months, JLT Employee Benefits has said.

According to JLT's monthly index, at 30 June 2014 the deficit was £177bn, while the funding level dropped from 91% to 87% over the year.

There was an increase in scheme deficits despite a bullish equities market and continued significant cash contributions from sponsoring companies, and this was mainly due to a drop in bond yields, JLT said.

The total scheme assets increased over the year from £1,085bn to £1,161bn, while the liabilities also increased over the same period by £147bn to £1,338bn.

Charles Cowling, JLT Employee Benefits director, said that if the UK interest rate rises in early 2015, then this could facilitate deficit reduction.

He added: "There is also positive news from a regulatory perspective, with the latest Pensions Regulator's funding code published this month recognising the need for 'sustainable growth' of sponsors in order to secure long term funding for the pension scheme.

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

"In addition, the provision for more flexibility for DB 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."

First published 01.07.2014

monique_simpson@wilmington.co.uk