UK pensions at risk like never before, says deVere CEO

Added 11th July 2016

Pensions in the UK face an unprecedented level of risk following the vote to leave the European Union, according to deVere Group chief executive Nigel Green.

UK pensions at risk like never before, says deVere CEO

“Those with UK pensions must be made aware that many of their hard earned savings are now in the eye of the perfect storm following the UK’s historic decision to leave the EU," he said.

For Green, there are four key factors that could seriously derail people’s retirement plans.

Gilt yields

“First, gilt yields have reduced considerably since the Brexit vote and this has driven up transfer values,” he said.

“This is good news for those wishing to take money out of the defined benefit scheme, but these larger pay-outs put extreme further pressure on the pension schemes themselves – many of which are already woefully underfunded. 

“As more and more individuals seek to secure a transfer, the more likely it is that schemes will run into liquidity problems and could seek to freeze transfers altogether.” 

"The ramifications of Brexit on pension schemes will only truly be felt over a period of years and by that point schemes may have already gone beyond the point of no return."

Pension deficits

“Second, these falling gilt yields will further drive up pension deficits –and this is the last thing they need. It was widely reported last week that the UK’s pension funding hole has hit a record high of £935bn ($1.2trn, €1.1trn). This is likely to grow and will soon reach a trillion. 

“The weight of these deficits brings into question the very survival of many company pension schemes and in order to survive they will need to make drastic changes to the terms of employees’ pension schemes.  

“Of course, there is the Pension Protection Fund (PPF), the government’s lifeboat fund, but this is already close to sinking. It simply isn’t in a position to handle any further high-profile collapses.” 

Economic downturn

The third factor is the downturn in the UK economy, Green added: “With some experts now forecasting a possible recession, it will become more and more difficult to fund pension schemes. Many companies will find the true cost of operating them increasingly prohibitive." 

Asset value

“And fourth, the value of the assets that the schemes invest in and hold is likely to depreciate due to the economic downturn.  For instance there are real and justified concerns over a cooling property market and the banking and travel sectors, with companies across many different industries issuing profit warnings.” 

Diversification key

“Brexit has helped create the worst of all worlds for pensions – and the true damage to pension schemes is not always immediately apparent as most schemes only carry out a full valuation every three years,” Green said.  

“As such, the ramifications of Brexit on pension schemes will only truly be felt over a period of years and by that point schemes may have already gone beyond the point of no return. 

“Now more than ever savers must ensure they are properly diversified to mitigate the increasing threats to their retirement funds,” he added. 

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About Author

Kirsten Hastings

Senior Reporter

Kirsten is a senior reporter for International Adviser, covering global news stories about the financial services industry. She joined Last Word Media in October 2015 after two years working as a reporter covering the staffing and recruitment industry. Kirsten has a Masters in Financial Journalism from the University of Stirling. 

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