By November 30, the British industries’ high pensions deficit of £500bn had dropped to £414bn after the Bank of England delayed interest rates rise and cut the rates to a record low of 0.25 per cent. The high levels signify that all British industries would be facing higher pension deficits in the future.
Larger companies have had the biggest pension deficits since 2015. About 100 listed UK companies have doubled their pension deficits in 2016. The £414bn pension deficit is still about 52 per cent higher than 2015’s £265bn in November 2015.
Companies are hoping that improvements in bond markets could help offset their deficits further. The increase of interest rates could help reduce the amount of deficits further. Experts said the sustained high amounts of deficits is an indication that companies in the future will be force to tackle the issues in the future.
According to JLT Employee Benefits Director Charles Cowling, the UK’s overall deficits for pensions have increased in the previous year and bears “no relief in sight for companies with large defined-benefit pension schemes. He said that the calm in markets may only be temporary as the Brexit will have an immense impact on bonds.
Defined benefit pensions give employees guaranteed amounts during their retirement. Because of low returns from bonds companies own, the final salary schemes and defined benefit pensions they now disqualify to new employees — at least until the current retirees they can provide better benefits.