UK final salary pensions are in the eye of a storm as deficits jump another £10bn

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15 Apr, 2020

UK final salary pensions are in the eye of a storm as deficits jump another £10bn

Final salary pension members should explore options to mitigate risks to their retirement savings posed as Covid-19 adds to the growing pension deficit threat, warns the CEO of one of the world’s largest independent financial advisory organisations.

The warning from Nigel Green, deVere Group’s chief executive and founder, comes as official figures from the Pension Protection Fund show that the total deficit of the UK’s defined-benefit schemes increased to £135.9bn at the end of March. This is a jump from £124.6bn at the end of the previous month.

Mr Green says: “The fallout of coronavirus has contributed a staggering £10 billion to the UK’s final salary pension schemes in a month.

“The impact of the pandemic has made the already enormous pensions black hole even deeper.

“Those with these UK pensions must be made aware that many of their hard-earned savings could face losses. 

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

“Therefore, sooner rather than later, they should explore the available options to safeguard their retirement income.”

He continues: “UK final salary schemes are in the eye of the perfect storm.

“With most experts now forecasting a major economic downturn, it will become increasingly difficult to fund pension schemes. It can be expected that some firms will find the true cost of operating them increasingly prohibitive.”

UK gilt yields, which collapsed to a new all-time low in March, are another issue, observes Mr Green.

“Falling gilt yields will drive up transfer prices. Of course, this is positive for members wanting 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 face liquidity issues already.”

He goes to say: “In addition, 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 travel sector, amongst many others, with companies across many different industries issuing profit warnings.”

The deVere Group CEO concludes: “The true damage to pension schemes is not always immediately apparent but this £10 billion jump in the funding gap should raise alarm.

“More than ever, people need to take responsibility to ensure they regularly review all their assets and investments to secure their futures."