Brexit Vote Has Pensions ‘Stretched To its Limit’
Post-Brexit, company pension scheme liabilities have increased with an additional £85bn, pushing businesses to the edge of collapsing their own defined-benefit scheme funds.
After the vote, investors had purchased the safest government bonds available, fluctuating rates for pensions. With the high demand on companies to top-up their schemes and resolve the increasingly-alarming crisis, employers may pull out their investment in their businesses, which may harm the economy and permanently erase the smaller pension schemes unable to keep up.
Government and business bodies continue to discuss united efforts to resolve the crisis. The discussion entails whether companies should be given better powers in calculating their profit shortfalls, the easing of pension contributions and dealing with cuts to already-retired employees’ retirement incomes.
Analysts said that strained pension schemes have happened to different EU countries. Germany’s Lufthansa airline group warned that an overhaul of their retirement benefits is essential due to the low-interest rate environment that caused its pension deficits to increase.
Actuaries at Hymans Robertson say the shortfall between assets and liabilities in all UK schemes, if insurers were to take over the responsibility of paying pensions in full, rose from £820bn on the day of the EU referendum to £935bn four days later.
Deficits had shrunk back to £925bn by the end of this week, according to Hyman’s calculations of the cost of an insurer taking over responsibility for pension promises.
RBC Capital Markets, the analysts, has identified 10 companies that are particularly exposed to further falls in bond yields, as their market capitalisation is dwarfed by their pension liabilities. These include Post NL, the Dutch postal operator; International Airlines Group, which owns British Airways; and Royal Bank of Scotland. The pension liabilities as a percentage of market capitalisation for these companies are 550 per cent, 297 per cent and 201 per cent respectively.