UK pensions will face more risks due to Brexit, it has been warned. Spurred on by low gilt yields, pension deficits climbed to a record £935bn in June, bringing on a mass of complications for defined benefit (DB) pension schemes.
Nigel Green, founder and chief executive of deVere Group, said that “companies not putting enough into pensions” was a factor in further exacerbating pension deficits.
Gilt yields fell below 1 per cent last month for the first time in history, driving up transfer values and putting more pressure on pension schemes in the process.
Mr Green said that as a proportion of what is left from pension deficits, “people who are transferring money out get a higher valuation.” While this is good for the investor, it can cause problems for the economy as a whole.
“Companies should be investing in the future, but people are promised pensions as well. You can’t win,” Mr Green added. Altering future pension scheme promises as a means of providing companies with security may seem attractive to employers, but Andrew Pennie, head of pathways at Intelligent Pensions, believes “flexible solutions will help businesses in the short-term and hopefully enable the DB pension to be funded and maintained.”
In a similar vein to BHS and Tata Steel’s pension plans, other schemes may reach a point of no return if the right solutions are not administered. While the prospects for DB pensions seem particularly discouraging in the current climate, Mr Pennie believes diversification is the top recommendation for helping to slow the impending damage to pensions.