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British firms face $A1.5Tln pension gap

Press AssociationPress Association 7/04/2016 Ben Woods

British firms are facing an STG800 billion ($A1.51 trillion) funding gap for their final salary pension pots after seeing the deficit nearly double over the past decade, according to research.

The gaping hole in defined benefit (DB) pension schemes has widened from STG425 billion pounds to STG800 billion pounds since 2006, amid lower expectations on future investment returns and people living longer, a report says.

The study by JLT Employee Benefits found the pension deficit had ballooned despite employers pumping in contributions worth STG160 billion pounds ($A302.34 billion).

It found that each final salary policy could see a gap of as much as STG73,000.

The study predicts that the total actual cash flow schemes will have to pay out could reach STG3.6 trillion pounds.

And, if low interest rates remain, then companies will have to stump up STG220 billion pounds in extra contributions over the next decade to reach the deficit levels of 2006, the report said.

It comes as financial markets have become increasingly volatile in recent months amid falling commodity prices, low interest rates and a slowdown in economic growth in China.

Financial stocks have also come under fire amid concerns from investors they are not holding enough capital to withstand an economic shock on par with the banking crisis of 2008.

Murray Wright, actuary and consultant at pension consultants JLT, said pension schemes cannot follow the same strategies they have used over the past 10 years.

She said: "Our analysis highlights that DB pension schemes across the UK should take a serious look at how they plan to close deficits".

"There is a 2.3 trillion cashflow shortfall that needs to be met by a combination of contributions from sponsors and future investment returns," she added.

"Trustees and employers should ensure they are using all of the levers available to them to stop pension shortfalls from spiralling out of control."

The increase in the pension scheme deficit was partly triggered by improvements in life expectancy, JLT said.

The average life expectancy for people in the UK rose from 75.7 years in 1990 to 81, according to figures published in medical journal The Lancet in September 2015.

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