Private pension time bomb ticks a little louder
According to a new report by Hymans Robertson, the future cost of paying private pensions to the estimated 11 million people in the UK who are in defined benefit schemes is now greater than the country’s gross domestic product (GDP). In the space of just one year, the price tag has risen from £1.7trn to £2.1trn, whilst Britain’s total annual output was just shy of £1.8trn.
Of course there is not much value to this comparison as the lifetime of the defined benefit schemes is likely to be many years whilst the UK’s GDP is for just one year, but it does bring attention to an issue that could cause big problems. Mark Wood, former head of Prudential in the UK, said that not only will pensions liabilities “ultimately compromise [a company’s] ability to pay dividends”, but that the liabilities can also “no longer be ignored when valuing companies.”