Pensions - Articles - JLT comments on impact to pension schemes by BoE decision

 “This is a brief respite for pension schemes. The Governor of the Bank of England, Mark Carney, has signalled that he expects to see a rate cut in the summer as a result of Brexit and a worsening outlook for economic growth. Indeed, this is largely already priced in to markets which have seen long-term interest rates fall markedly in the last few weeks. This has caused pension scheme deficits to rise significantly as a result. 

 “Trustees who were hoping or expecting interest rates to rise and have, so far, been reluctant to reduce or remove exposure to interest rate risk in their pension scheme, through Liability Driven Investment or other means, are faced with the dilemma of whether to act now that prices have moved even further against them. Alternatively, they could stay in the investment casino and hope that markets are wrong and interest rates rise soon? For pension schemes with 2016 actuarial valuations, there are going to be some difficult negotiations as bigger pension deficits are inevitably going to result in trustee demands for hikes in employer contributions.”