The pension funds of Britain’s top 350 companies have posted a record £813 billion black hole at the end of June.
While liabilities climbed by £52 billion in June, accounting deficits were up £21 billion to £119 billion.
Realistically, these are huge numbers that companies cannot afford to make up any time soon without a serious change of thinking to cancel dividend payments to shareholders and to divert the money into pensions.
The funds have combined assets of £694 billion but owe present and future pensioners £813 billion.
Brexit turmoil triggers deficit
The company’s report explains that the gap would be wider without a sweeping devaluation of the Pound following the Brexit vote.
“The fall in corporate bond yields meant that liability values increased by over 5% during just one month, corresponding to a 20% increase in deficit values,” said Mercer’s retirement expert Ali Tayyebi.
“Government bond yields fell even more than corporate bond yields which meant that liabilities on the funding basis, which pension scheme trustees typically use for setting cash contribution requirements, increased by over 8%.”
“Market volatility in the last week of June is just an early skirmish in the fight to understand the longer term outlook for the UK’s economy and markets. The risks and associated opportunities which this creates and the appropriate speed of response will be very specific to individual pension schemes, highlighting the value of frequent monitoring of funding.”
QROPS lifeline for expats
Workers with pensions with a FTSE100 or FTSE250 company who will stay in Britain when they retire have little choice over how to rescue their retirement savings.
Expats can look at how a transfer to a Qualifying Recognised Overseas Pension Scheme (QROPS) could help them make more of their retirement spending power.
Workers with final salary schemes could look at the risk to their pensions if they are transferred to the government’s Pension Protection Fund.
If the pension is switched, then savers can expect to lose 10% of their expected pension pay out and a cap on pension benefits of £32,671 a year.
Retirement savers with larger pensions can expect to suffer the most.