£380 billion UK final pension BLACK-HOLE

[Paul]

The old quote of not being able to see the wood for the trees, I think we are at a point now where people are looking at a small piece of bark on one tree, and ignoring the entire forest 

If this doesn't give you very good reason to see why holding gold long term for your retirement/investment, Without counterparty risk (ie you hold it and own it in hand)

This article gives in reasonably easy terms a small break down of the elephant in the living room and what potential problems lie ahead

http://www.dailymail.co.uk/money/pensions/article-3686601/Total-deficit-final-salary-schemes-soars-90bn-384bn-Brexit-hits-funds.html

UK's pensions black hole balloons 30% in a MONTH: Total deficit of final salary schemes soars £90bn to £384bn as Brexit hits funds

Total deficit of eligible schemes hits £383.6billion
£89billion added to deficit of eligible schemes in one month
Fears over impact of Brexit on private 'gold plated' pensions continues 

The potential black hole faced by the UK's final salary pensions schemes has soared a massive 30 per cent in one month to reach a dizzying £384billion

Put together, the deficits of all schemes eligible to join Britain's pensions lifeboat in the event a company goes bust increased from May's £294.6billion by a staggering £89billion, as Brexit fears have hammered the schemes' investments in Government bonds.

Data from the Pension Protection Fund, which dishes out compensation to staff in certain circumstances, revealed the total deficit of all eligible schemes £383.6billion by the end of June, from £209.6billion at the same point a year earlier - an annual increase of 83%

With fears swirling over the potential impact of Brexit on the UK's 'gold plated' private sector schemes, of the 5,945 eligible schemes,

4,995 are in deficit, with total liabilities standing at £1,747billion - the highest level since the PPF's records started in March 2006.

The figures relate to defined benefit pension schemes, such as final salary schemes, which have become increasingly rare as many firms opt to run cheaper options.

 

A spokeswoman at the PPF said: 'While the deficit has worsened significantly, it is important to remember that pension liabilities are long-term and these numbers need to be looked at in this context. As such, one month's deficit numbers are not a cause for alarm.'

Companies with defined salary pension schemes build up pots to ensure that they can continue to pay retired employees for the rest of their lives. 
The pots are invested so that they grow over time. However one of the predominant investments tends to be government bonds, known as gilts.

These are seen as a good option because they are not very risky - it is very unlikely that the government will default on its debt and the gilts lose their value.

However, the interest paid on gilts are at a record low so the returns pension funds are receiving are very low. 

This is due in part to the uncertainty created around Brexit - at times of economic shock investors tend to opt for the least risky options - and gilts and gold come top of the list. The more popular they are, the more expensive they are to buy and the less they pay out in interest. 

However pension funds do not have to pay out their full liabilities all at once - money is paid monthly to those who are already retired, and is not yet paid at all to those still in work. 
So while a deficit is an issue if it is prolonged or becomes unsustainable, it is not necessarily a huge cause for concern in the short-term: funds may still have time to make up the shortfall when conditions are more favourable.

Sebastian Schulze, a Director at Redington, said: 'The drastic rise in deficits is largely down to dramatic movements in the gilt markets. 

Yields on long-term gilts (the most relevant asset for valuing pension schemes’ liabilities) fell by as much as 0.4 per cent to 0.5 per cent after the vote. 

 

• WHAT ARE BOND YIELDS 

Bond 'yields' are a measure of the annual return to investors who buy government debt. Bond 'prices' are the cost, or what these investors pay to buy the debt.
Bond yields and their prices move in opposite directions. When yields move up, prices fall.
But yields on both government and corporate bonds have been at very low levels for years - meaning they have rarely been so expensive. 

This resulted in a significant increase in the value of liabilities and deteriorating funding positions for those schemes which have failed to hedge interest rate risk. 
The average UK pension scheme probably saw liabilities rise by as much as 10 per cent.
Meanwhile, generally, equity markets have not fared too badly. The FTSE 100 recovered quickly after the vote and since then has risen 10 per cent. From this, we can see the diminished funding position is not down to an under-performance of assets, but from a failure to take action on liability risk.

In this environment, schemes need to think carefully about the risks they are taking. The impact of the referendum is a painful example of why pension schemes continue to play catch-up with liabilities. For too many schemes, un-hedged interest rate exposure has cancelled out any positive impact they have seen from asset performance. 

Meanwhile, Tom McPhail, head of retirement policy at Hargreaves Lansdown, said: 'The UK's gold-plated pension system is starting to look tarnished. Deficits are soaring, employers are reneging on their promises and still more money is needed. Companies are having to divert profits into schemes to make good on their promises, which means less investment capital to help businesses grow and less money available to invest in the pensions of younger workers.'

 

 

• DEFINED BENEFIT PENSIONS

Staff enrolled to a defined benefit pension scheme are promised a certain level of guaranteed income in retirement. 
Such schemes are becoming increasingly uncommon as employers look to run cheaper pension schemes. 

The demise of BHS has plunged the world of pensions into the spotlight, after it was revealed the stricken retailer has a pension deficit of around £571million.
BHS fell into administration in April this year, just 15 months after being sold by the retail tycoon for £1 to three-times bankrupt Dominic Chappell. 

also dont forget about the Mirror Pension group where Robert Maxwell was happy to spend it at the expense of his staff to the tune of £400 millions in the 80s

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In a similar article, they seem to suggest it is closer to £900 billion in the hole 

http://www.independent.co.uk/news/business/news/brexit-latest-news-pensions-deficit-eu-referendum-bhs-tata-steel-a7156491.html

The UK pension deficit hit a record level of £935 billion following UK’s vote to leave the EU, likely hitting pro-Brexit voters the hardest.

Support for the UK to leave the EU bloc grew with each age category, peaking at 60 per cent among those aged 65 and over, according to a survey of 12,356 referendum voters by Lord Ashcroft. Ironically, the same voters are reliant on defined benefit pension to deliver their retirement income.

But UK’s pension deficit rose from £830 billion to £900 billion overnight following the EU referendum. 

The vote then pushed the gap further to £935 billion as of July 1, according to Hymans Robertson, an independent pension’s consultancy, making it responsible for £115 billion of debt.

 

Who knows what is ahead in years to come but there are 380 billions reasons why owning a bit of gold might be helpful in years to come
 

[HawkHybrid]

Quote

as Brexit fears have hammered the schemes' investments in Government bonds

 

considering the ftse is actually mostly equal to what it was before

brexit. people responsible for 'schemes investments' in government

bonds have a lot to answer for. blame it on brexit. they all overlook

the fact that interest rates provide a return for pension funds. being

kept at 0.5% for a few years must have had its impact. the media is

either incompetent or biased.

 

HH

[KDave]

We all know that this pensions black hole did not exist before the EU referendum and this whole mess is because of Brexit. You all voted for this. 

I am no expert but as far as I can tell modern pensions are either pyramid schemes that require an ever growing bottom layer to service those above or they are based on the model of historic returns from investments, which of course used to be much higher when economic growth was largely based on the uptake of debt. Now the actual returns on investments is much lower than these assumed numbers and will likely remain so into the future. At some point the math will catch up to us and pensions will either fail or people who thought they had a good deal will find they will have to accept a lot less than they expected in retirement.    

Could be wrong of course which is why I contribute into one, but the all eggs in one basket strategy that many people follow with pensions looks rather a risky prospect.

[Kamikaze]

1 hour ago, HawkHybrid said:

the media is

either incompetent or biased.

 

 

Can I pick both of them?

 

But yeah pensions just looks like a giant ponzi scheme. Never mind we can print more money and top up the stock market so everything is fine again. Print print print...

 

You know the worst part about if gold does well for everyone here? It probably means the entire world has financially fallen apart and 9/10 people you know will be in a terrible place financially. That would be a tough place to be, even with a big stash of gold making sure you are fine.

[Clens92]

I don't think the traditional pension will even exist in 30 years time, let alone when I hit pension age in 45 years or so.

I wont be paying into one either - I will save and invest my own money; no middleman, no-one to blame if I get it wrong, and no thieving bankers taking their cut.