Deficits in UK final salary pensions increase by ANOTHER £10bn
It’s imperative that those with a final salary pension look into options to mitigate risks to their retirement savings as the coronavirus pandemic adds to the burgeoning pension deficit threat.
Indeed, official stats from the Pension Protection Fund reveal the total deficit of Britain’s defined-benefit schemes rose to £135.9bn at the end of last month, up from £124.6bn recorded at the end of February.
The fallout from the COVID-19 pandemic has contributed an overwhelming £10bn to Britain’s final salary pension schemes within a month, making the already massive pensions black hole deeper still.
As such, individuals with these UK pensions must recognise that they could face losses in their savings.
The sheer size of the deficits raises the question of whether many company pensions schemes will be able to ride the storm, and in order to survive, they may need to make substantial changes to the terms of employees’ pension schemes.
Consequently, holders of these pensions need to look into their available options as soon as possible in order to protect their retirement income.
As it stands, UK final salary schemes are in the eye of the storm. With a major economic downturn on the cards according to most experts, it will become far harder to fund pension schemes. Indeed, some companies may find the real cost of operating them too excessively.
After falling to a record low last month, UK gilt yields also need to be considered.
Falling gilt yields will lead to higher transfer prices. Naturally, this is positive news for members wishing to withdraw money from the defined benefit scheme, but larger pay-outs could pile additional pressure on the schemes themselves, some of which are already grappling with liquidity problems.
Furthermore, the value of the assets the schemes invest in and hold will likely decrease as a result of the economic downturn. An example, there are serious concerns regarding the cooling travel sector, among others, with firms across different industries issuing profit warnings.
Although the real damage to pension schemes is not always clear from the outset, this £10bn jump in the funding gap should ring alarm bells.
Therefore, now more than ever before, people need to take responsibility to make sure they regularly review their investments and assets to safeguard their financial futures.