LONDON (Reuters) - British private sector defined benefit, or final salary, pension scheme liabilities of 2 trillion pounds ($3.11 trillion) have outstripped Britain’s GDP for the first time due to ultra-low interest rates, pensions consultants Hymans Robertson said.
Low interest rates have meant the pension funds are struggling to make the investment returns needed to pay their pensioners.
The 2-trillion pound pension hole exceeds Britain’s gross domestic product of 1.8 trillion pounds, Hymans Robertson said in a statement.
“There’s a pressing need for DB (defined benefit) schemes to focus on income-generating assets rather than simply chasing capital growth,” the consultants said.
“This will help raise schemes’ resilience to poor capital returns — avoiding any fire sale of assets at depressed prices to pay pensions.”
British pension funds have increasingly been investing in higher-yielding, riskier assets such as infrastructure or corporate debt.
Hymans Robertson said recent British pension reforms would also likely lead to 10 billion pounds in annual transfers from defined benefit schemes to defined contribution schemes, which enable retirees to spend their pension pots as they wish.
This would increase the gap between the contributions which the defined benefit pension funds receive and the benefits which they need to pay out, the firm added.
($1 = 0.6437 pounds)
Reporting by Carolyn Cohn, editing by Louise Heavens