Today’s inflation rise heralds yet more misery for already deficit-laden British pension funds and the UK economy – and it is only likely to get worse, warns the CEO of one of the world’s largest independent financial advisory organisations.
The warning from Nigel Green, founder and chief executive of deVere Group, comes after the annual rate of CPI reached 0.6 per cent in July, and increased from 0.5 per cent in June.
Mr Green affirms: “This post-Brexit inflation rise doesn’t sound like much. However, inflation is now at its highest level since November 2014 and it is a bad omen for pensions and the wider economy moving forward.
“We can expect inflation’s upward trend to gain momentum as the Brexit battered pound’s depreciation really begins to take hold in 2017.”
He continues: “The inflation rise heralds yet more misery for already deficit-laden British pension funds and the UK economy.
“The black holes engulfing many company pension schemes are set to get even worse due to today’s increase in inflation. The funding gap is likely to soon reach £1tn.
“More pressure is the last thing these schemes need. They have seen their deficits grow due to falling gilts following the Brexit decision and due to the Bank of England cutting interest rates to 0.25 per cent and boosting Quantitative Easing (QE) by £60bn, in an attempt to cushion the UK from a Brexit shock recession.
“All in all, Brexit has been disastrous for UK pensions.”
He adds: “The scale of these enormous deficits casts doubt on the very survival of many company pension schemes and in order to survive they will need to make drastic changes to the terms of employees’ pension schemes.
“Unfortunately, I think we can expect the Brexit impact to topple some firms and their pension schemes.”
Mr Green goes on to say: “As the black holes grow, companies running such pension schemes will need to divert increasing levels of funding to plug the gap instead of using this money to invest. This is bad news for the UK’s sustainable long-term economic growth.”
The deVere CEO concludes: “Brexit has helped create the mother of all storms for pensions and I don’t believe we’re even in the eye of that storm yet.
“I suggest people review their retirement planning strategies now to mitigate the devastating impact the inflation rate hike and other Brexit fallout factors could have on their hard-earned retirement funds.”