More Bad News for UK Pensions

Following the Bank of England’s historic decision to cut interest rates to 0.25%, as a result of the EU referendum result, gilt yields have plummeted to historic lows, with interest rates on some government bonds turning negative1 and this has left already struggling UK pensions reeling from the fallout.

The effect on Defined Contribution Pensions

If you are in a UK Defined Contribution pension you will suffer from lower income from your pension with annuity rates falling by 10%1 over the past year, cutting the income for a pension fund of £200,000 by £1,0481.

If that wasn’t bad enough, the pound has fallen by over 20% against SGD2 over the last year, further reducing the spending power of expats intending to retire overseas.

For Final Salary Schemes the picture is, if anything, worse.

The interest rate cut hits pension funds, as gilt yields are a major component in valuing the future liabilities of a scheme. Each time yields fall, the gap between assets and liabilities grows, throwing many schemes into deficit.

Figures from the Pension Protection Fund revealed that the collective deficit of nearly 6,000 of the UK’s biggest company pension schemes had widened by more than £24bn in a month to reach a new high of £408bn3.

The latest rise in the deficit of schemes covered by the pensions lifeboat points to the difficulty in tackling troubled schemes including BHS, where former owner Sir Philip Green is battling to “sort” the problem, and Tata Steel, where a pensions restructuring could be key to a rescue bid.

The latest deficit estimate comes after a 31% rise announced last month in the wake of the Brexit vote but before this month’s decision by the Bank of England to cut interest rates to 0.25% and start pumping money into the economy.

What should you do?

You should review your UK Pensions urgently to see how you are affected and find out what actions you can take to safeguard your retirement plans.

Contact your AAM Financial Planner or email now and get a professional analysis of your pension options from a Chartered Financial Planner.

Ian Black
Head of Wealth Solutions
AAM Advisory Pte Ltd




This article is an op-ed piece by Ian Black. The views expressed in this article are those of the author and do not necessarily reflect the views of AAM Advisory Pte Ltd. This document/article should not be construed as an offer, solicitation of an offer, or a recommendation to transact in any securities/products mentioned herein. The information does not take into account the specific investment objectives, financial situation or particular needs of any person. Advice should be sought from a licensed financial adviser regarding the suitability of the investment product before making a commitment to purchase the investment product. Past performance is not necessarily indicative of future performance. Any prediction, projection, or forecast on the economy, securities markets or the economic trends of the markets is not necessarily indicative of future performance. Whilst we have taken all reasonable care to ensure that the information contained in this document is not untrue or misleading at the time of publication, we cannot guarantee its accuracy or completeness. Any opinion or estimate contained in this document is subject to change without notice. The above report may contain data obtained from third parties and as such we cannot guarantee the accuracy of this data.