Personal Pension  

Brexit shock pushes UK’s DB deficit up £80bn

Brexit shock pushes UK’s DB deficit up £80bn

The British public’s decision to leave the European Union has had a dramatic effect on the nation’s collective defined benefit deficit, increasing it by £80bn, according to pensions consultancy Hymans Robertson.

The firm calculated that, thanks to the savage hit to markets as a result of the Brexit vote, DB schemes were now in deficit to the tune of £900bn, up from £820bn the previous day.

Describing the vote as “momentous”, Hymans Robertson chief investment officer Andy Green said the shockwaves would be felt around the world. He said returns on both equities and bonds would suffer as a result.

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“Financial markets have responded even more dramatically to the result than expected. They are moving sharply, with the FTSE 100 slumping 8.7% on opening. We’ve seen the pound hit a 30 year low against the dollar with a record intra-day swing.

“As is often the case in times of extreme uncertainty and volatility we expect to see a ‘flight to safety’. Barometers of risk aversion have gone up in value, with corresponding falls in yields – around 25bps on nominals.”

He added, though, that while the risks of Brexit were more obvious, there were also bound to be opportunities.

Jon Hatchett, Hyman Robertson’s head of corporate consulting, reminded trustees not to overreact to short-term volatility, saying pensions were “a long-term game”.

“Pension funds have been limited in their ability to protect themselves fully from the uncertain outcome of the EU Referendum. Following the vote to Leave, it’s likely that falls in expectations for UK GDP growth will weigh on equity markets and on interest rates – putting more pressure on funding deficits.

“While we’d advise schemes to avoid over-reacting to short term market volatility, as the dust settles, it may be worth considering whether any changes to investment strategy are required. Particular care should be sought if any triggers have been breached and we recommend seeking clear advice before taking any action,” he said.

Shortly before 2pm, the FTSE 100 had recovered more than half the initial losses, bringing the day’s losses to 3.87 per cent.

james.fernyhough@ft.com