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Pension deficit will widen says ex-minister

The combined deficits of all UK defined-benefit pension schemes, which is already at a record high, is likely to worsen.

That was the analysis of Bloomsberg in the light of comments to the news agency by Baroness (Ros) Altmann, the former pensions minister, on 26 July.

The current funding gap rose overnight from £820 billion to £900 billion following the referendum result, and has since grown to a record £935 billion, according to pensions consultancy Hymans Robertson.

The rise in the deficit has been blamed on a sharp drop in UK government and corporate bond yields.

If additional quantitative easing is ultimately required to offset growing uncertainty, this would suggest “that bond yields are going to fall, which makes pensions a lot more expensive to provide,” the former minister told Bloomberg. “Deficits would be larger if gilt yields fall further.”

Beyond gilt yields, Altmann said that anything that damages the economy is also bad news for pensions. The country’s gross domestic product is now expected to grow by 1.5 percent this year and just 0.6 percent in 2017, according to a Bloomberg survey of economists conducted July 15-20. That’s down from 1.8 percent and 2.1 percent, respectively, before the Brexit vote.

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