The Irony of Brexit
While 60% of Britons over the age of 65 voted in favour of Brexit, these are the exact individuals most likely to be negatively impacted by the widening funding gap in the pensions industry in the UK. Bloomberg reported that as at 1 July 2016, the combined deficits of UK defined benefit pension funds had reached a record £935 billion. Johan Kriek, Head of Liability-Driven Investments at Sanlam Investments, breaks it down for us.
Pension liabilities have increased as the yields typically used to value the liabilities have decreased. As many funds are not fully hedged in terms of their liabilities for a variety of reasons, this meant that the difference between their asset values and liabilities values (the funding gap) increased.
This gap is a major concern as someone needs to make up the difference – typically this duty would fall to the employer who has made the pension commitment. However, employers will find it hard to make up these deficits as forecasts suggest that UK economic growth will face a tough year – the probability of recession has increased from under 20% in June to 40% this month:
In South Africa, the majority of our Defined Benefit pension schemes have a surplus (assets are greater than liabilities). For funds that have a deficit / funding gap, or funds with a surplus that want to maintain stable funding levels, our Liability Driven Investment (LDI) solutions can assist. Funds in deficit can benefit as an LDI solution can be created to reduce or even eliminate the deficit.
For the full article from Bloomberg, follow this link: http://www.bloomberg.com/news/articles/2016-07-26/brexit-s-biggest-fans-face-new-115-billion-pension-hole
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