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Brexit uncertainty leads to increased DB scheme deficit

23 June 2016

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Uncertainty in the lead up to yesterday's EU referendum led to the UK's collective DB pension deficit increasing to £850bn.

Figures from pensions and benefits consultancy Hymans Robertson show the deficit increased by £120bn over a six-week period.

It has since recovered, bouncing back by £30bn but, according to Hymans Robertson, the volatility is due to fears over yesterday's result.

Jon Hatchett, partner and head of corporate consulting at Hymans Robertson, said: "Uncertainty over Brexit led to falls in growth asset prices as well as further drops in already ultra-low yields, which is hammering liabilities."

The recent volatility is further evidence of DB pension schemes vulnerabilities, following recent crises at Tata Steel and BHS schemes.

deVere Group CEO Nigel Green recently said the BHS and Tata Steel situations should be a wake-up call to the industry, and urged schemes to avoid complacency around the risk burgeoning deficits (PFI, 9 June).

BHS recently became the latest major British firm to collapse with huge pension burdens, after
the government launched a consultation into how Tata Steel can separate from the British Steel Pension Scheme (BSPS) in order to sell.

Hatchett from Hymans Robertson said while major events such as this week's referendum are not unique, schemes are more prone to volatility than they need to be.

He said: "Back in February we saw the collective UK DB deficit hit its ever highest level at just over £900bn, and this was followed by another swing of more than £100bn in a six-week period, from mid-February to the end of March."

"It needn't be this way - too many schemes continue to take too much growth risk with too little protection."

Although the referendum results will have an impact, DB schemes should avoid knee jerk reactions, he said.

"Schemes should remember that pensions are a long-term game so have contingency plans and prepare for a bumpy ride," he added.

First published 23.06.2016

Lindsay.sharman@wilmingtonplc.com