Turning 65 used to mean mandatory retirement and a future of endless holiday. But in 2016 in Britain it came to signify a very different cut-off: Membership in the single most pro-Brexit age group in the June 23 EU referendum.
About 60% of UK population of 65 and older voted to leave the world’s largest trading bloc, the most of any age group, according to two separate exit polls.
The glaring irony is that senior citizens are also the most reliant on pensions, which face a worsening funding gap since the Brexit vote.
The combined deficits of all UK defined-benefit pension schemes, normally employer-sponsored and promising a specified monthly payment or benefit upon retirement, rose £80bn (€95.6bn) overnight following the referendum to £900bn, according to pensions consultancy Hymans Robertson.
Since then, it has grown further to a record £935bn as of July 1.
A sharp drop in UK government bond yields to record lows, and a similar decline in corporate bond yields, is largely to blame for the uptick in defined-benefit pension liabilities.
That’s because fixed income represented 47.5% of total 2014 assets for corporate pensions funds, of which about three-quarters were issued by the UK government and/or sterling-denominated, according to the 2015 Investment Association Annual Survey.
And the slump may not be over yet. While the Bank of England held off on cutting rates at its July 14 meeting, early signals point to serious pain ahead for the UK.
If additional quantitative easing is required to offset growing uncertainty, this would suggest “that bond yields are going to fall, which makes pensions a lot more expensive to provide,” former pension minister Ros Altmann said last week.
“Deficits would be larger if gilt yields fall further.”
“If companies have got to put even more into their pension schemes than they have previously, then clearly their business will be further weakened,” Ms Altmann said. Bad news, in other words, for Brexit’s biggest supporters.
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