Defined Benefit Deficit Hits £0.8 Trillion – Up 200% Since 2006

Despite frantic and concerted efforts by employers across the country to plug the gaps, the past nine years have seen the shortfall of defined benefit (DB) schemes increase to a whopping £800 billion. This is almost double the figure recorded back in 2006, suggesting that current efforts are having little to no effect whatsoever.

Analysis carried out by JLT Employee Benefits attributed to the skyrocketing deficit to lower than expected investment returns and the fact that people are living longer than ever before. The aging population once again taking its toll on the economy.

As of March 31 2006, scheme assets were recorded at £0.65 trillion. By March 31 2015, the figure had shot up to £1.3 trillion. And during the same period, liabilities hit a new high of £2.1 trillion from the prior £1.1 trillion.

In terms of life expectancy, people were as of 2015 living approximately two years longer than they were in 2006. This seemingly minor nine-year period had such an effect on longevity that a further £135 billion was added in liabilities. Employers have been investing serious and on-going efforts in closing the gap, contributing a full £16 billion, though during the same nine-year period the total deficit has doubled.

According to analysts, schemes are now facing a gap in funding of around £2.3 trillion.

Should low interest rates remain the new standard going forward, UK employers would need to contribute at least £220 billion between now and 2025, just to repair the damage done over the past nine years and return things to their prior 2006 levels. Speaking on behalf of JLT, Murray Wright stated that the time had come for schemes to take a serious look at how they intend to progress, stating that they simply cannot and will not get away with following the same strategies as they have over the past decade.

“There is a £2.3trn cashflow shortfall that needs to be met by a combination of contributions from sponsors and future investment returns. They also need to consider how the £2.3trn target itself can be reduced through liability management exercises,” he said.

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

Between March 2006 and March 2015, the number of active DB schemes plummeted to 5,945 from the prior 7,751.

Speak to the Experts

While individual savers need not necessarily be concerned with regard to their own savings, it’s nonetheless prudent to seek independent advice to ensure the best possible decisions are made long-term. Available schemes and options are changing and shifting all the time, meaning that if a consultation has not been sought for some time, it may be advisable to speak to the experts.

Haven IFA has the knowledge and experience to help guide your financial future in the right direction. And so, anyone who is one of the deferred members of a DB scheme that would like to review their options or who is worried about a scheme that’s they think might be in trouble should can contact Haven IFA on 0161 495 9340 for a no obligation appointment.