The aggregate deficit of FTSE 350 defined benefit pension schemes increased in July, causing the funding ratio to drop to the lowest level in four years, according to Mercer’s latest pensions risk survey.

Deficits increased by £4bn, up to £116bn at 31 July 2014, while the funding ratio sat at 83 per cent. The last time the funding ratio was lower than 83 per cent was August 2010, Mercer said.

Asset values increased by £2bn over the same period, reaching £583bn. Liabilities also took a jump up to £699bn at the end of June, compared to £693bn at the end of June.

Despite intermittent improvements in funding levels, the broad trend of a gradually increasing month-end deficit witnessed since the start of the year continued over July, Mercer senior partner Ali Tayyebi said.

“For many companies this deficit is now often considerably lower than the IAS19 accounting deficit that they are required to calculate and report on in their accounts. The gap between these two deficits is unlikely to shrink unless there is a significant change in financial market conditions,” he added.

The firm’s financial strategy group senior partner Adrian Hartshorn added: “As the fall in funding levels used for accounting purposes is not being mirrored in the funding levels used by scheme trustees to determine cash contributions, there are opportunities for pension scheme sponsors to negotiate lower cash contributions and also to take advantage of higher funding levels by implementing risk management actions through changes to investment strategy.

“They can also take advantage of the additional flexibility introduced by the Chancellor’s March Budget now confirmed by the subsequent consultation exercise,” he said.

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