Deficit Of £1tn For Defined Benefit Pensions

The total deficit facing UK defined benefit pension schemes has hit £1tn, according to new research.

The research from actuarial firm Hymans Robertson covers defined benefit schemes - gold-plated "final salary" retirement funds which guarantee a certain income and are increasingly being phased out by private sector employers.

It comes as pension funds face a squeeze from plunging yields on Government bonds known as gilts.

These gilts - parcels of Government debt - are safe haven investments often bought by pension funds to meet future liabilities.

But in the volatile post-Brexit market they are in high demand, pushing up their prices and therefore reducing the yields - or returns - that they produce.

The Bank of England earlier this week hit a snag when its attempts to buy up billions of pounds worth of gilts in a money-printing exercise fell short by £52m , as investors did not want to sell to it.

The issue of pension deficits was brought into sharp focus after the collapse of BHS with a big pension fund shortfall as well as the big retirement scheme liabilities facing Tata Steel (BSE: TATASTEEL.BO - news) .

MPs (BSE: MPSLTD.BO - news) on the Work and Pensions Committee are investigating whether the Pensions Regulator should be given more powers in the light of the BHS collapse.

Patrick Bloomfield, partner at Hymans Robertson, said that despite the experiences of BHS and Tata Steel, he would warn those in direct benefit schemes against "a rush to the exit".

He said: "Transfer values are at record highs, but once a member transfers out, there's no going back.

"Finding a better deal elsewhere might not be possible for the majority, without taking on more personal risk.

"If pension schemes experience a lot of members trying to transfer their pensions out, trustees are likely to use their powers to reduce transfer values to protect their scheme's funding for those who remain."

He said that pension schemes could "weather this storm" if they had a strong business standing behind them and that only members of schemes with "less robust sponsoring businesses" needed to worry.

Mr Bloomfield said: "But in the current economic climate it's unlikely we'll see a sudden rush of more schemes falling into the PPF (Shenzhen: 300258.SZ - news) (Pension Protection Fund).

"We need to remember that corporate failures in the UK continue to be low, with under-performing businesses propped up by low interest rates and cheap borrowing."