According to the retirement consultancy Mercer, at the end of 2015 the combined final salary pension deficit for the FTSE 350 was £39 billion.
The FTSE 350 represents approximately 50% of all UK final salary pensions.
At the end of 2016 the deficit increased to £137 billion.
This massive deficit increase occurred even though firms were making huge contributions and making good returns from investments.
Here are the full grizzly details.
Bond yields seem to be the main culprit having felt pressure from Brexit and Donald Trump’s election victory.
Corporate bond yields lost more than 100 basis points in 2016 placing additional pressure on corporate balance sheets.
There are also isolated instances of mismanagement by firms such as Barclays Bank reporting a £1.1 billion deficit up to 30 September 2016 from a surplus of £0.8 billion the previous year.
But the central theme here is that these huge pension pots seem unable to navigate the vicissitudes of the market.
More importantly they are unable to take advantage of the market opportunities that they create.
Here is a chart of the FTSE 100 with Brexit and Donald Trump’s victory clearly marked on there:
I highlight these huge macro events and their impact on markets simply to show how they can create opportunities to purchase the stock of stable dividend paying household names at a discount to their intrinsic value.
It appears that institutional investors are unable to sell bonds and buy stocks.
There also seems to be a constant state of crisis in both private and public sector pension in the UK that is not going away any time soon.
It does not mean that defined benefit schemes are about to fall into the sea by any means but there are compelling reasons to take a more ‘hands on’ approach to your financial future in retirement in addition to your plain vanilla investments such as pensions.
My approach is to add to what the government and employers provide in the way of pension provisions to build a more solid foundation for myself and family in an increasingly uncertain financial world.
Yes it is hard but so is living in poverty in retirement.