Risks to UK pensions go through the roof post-Brexit

UK pensions are looking ahead to an unparalleled level of risk following Britain’s decision to leave the EU.

There are several factors that together could have a severely negative impact on retirement savings.

Since the historic 23rd June referendum, individuals with UK pensions must realise that their savings are now in the eye of the perfect storm.

There are four crucial factors that could deal a crushing blow to people’s retirement ambitions.

First, since the Brexit vote, gilt yields have fallen substantially, which has driven up transfer values.  Although this is positive news for individuals planning to withdraw funds out of defined benefit schemes, such large payments could place additional pressure on the pension schemes themselves – a large number of which are considerably underfunded.

Furthermore, the pension schemes could face liquidity problems as an increasing number of people look to transfer.  Or, such transfers could be frozen completely.
Second, dropping gilt yields will drive up pension deficits further.  This would be devastating, particularly as the pensions funding black hole in the UK has reached a £935 billion high, a figure that is likely to rise and could soon reach a trillion.

Such hefty deficits could jeopardise the survival of many pension schemes, therefore, radical changes will have to be implemented to employees’ pension schemes in order to survive.

Even though the government’s Pension Protection Fund in place, it is not in a position to cope with any additional high-profile downfalls.

Third, is the decline of Britain’s economy following the Brexit vote.  A number of financial experts are indeed forecasting a recession, making it increasingly difficult to fund pension schemes.

Several firms may find the cost of operating the schemes progressively unaffordable.

Lastly, the value of the assets the pension schemes invest in could be downgraded as a result of the economic downturn.  For example, a cooling property market and concerns over the banking and travel industries are sparking warranted concerns.  Numerous companies throughout various industries have indeed issued profit warnings.

As the reality of the Leave victory continues to ripple through the world of pensions, the real damage to pension schemes is not yet known, as the majority of schemes only undertake a full valuation every three years.

Therefore, the consequences of Brexit on such schemes may only be experienced in years to come, by which time, it may be too late to make essential changes to safeguard their survival.
As such, it’s more important than ever for individuals to make sure their portfolios are suitably diversified, in order to best circumvent the rising threats to retirement savings.

Click here for my LinkedIn profile and Twitter account.


Your comment

Your email address will not be published. Required fields are marked *

Financial Health Quiz

Discover your financial well-being with the Financial Health Quiz.

In just 2 minutes, assess your finances, get personalized results, and actionable steps – all for free.

Take the quiz

Get the latest from Nigel Green