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13 Jul 2016

Global pension schemes prepare for Bexit fallout

Pension schemes from all over the world are bracing themselves and their clients following the UK´s vote to leave the European Union, with some predicting cuts to member benefits, the Financial Times reports.

Funds from as far away as Australia have been forced into issuing emergency advice to retirees as a result of the Brexit decision in June, which appears to be damaging global growth expectations and intensifying pre-existing concerns about pension funding.

The chance of interest rates increasing is small; there is more pressure on the European Central Bank and US Federal Reserve to boost market confidence, while Mark Carney - governor of the Bank of England - recently promised a ‘whatever-it-takes´´ strategy for boosting UK growth.

For some time now pension schemes have been hoping that low interest rate policies would come to an end, due to the fact that they have a negative impact on returns, so the news comes as a blow in terms of what the effects on their portfolios could be.

The largest pension fund in Europe, ABP, manages $350 billion of assets for employees in the Netherlands; it says that its capacity to fulfil future pension obligations is now “in the danger zone.”

A spokesperson for the fund said that while no final decision has been made, “the prospect of a benefit cut for members is indeed more likely than it was before the vote.”

A separate spokesperson for the second-largest Dutch pension fund, PFZW, highlighted the “negative impact” that the referendum result had on the scheme´s coverage ratio - in part because its stock investments had taken a blow.

Meanwhile, the PME pension fund for 600,000 Dutch metal and electrical professionals has explained to its members that “low interest rates make our pension liabilities sky high and our coverage ratio too low.”

Elsewhere in the world, contingency plans are being put in place. The Irish Association of Pension Funds held an emergency meeting last week to discuss how the vote would affect Irish schemes, while some US funds have warned that the value of their assets could fall by around 2%.

Of course, British pension plans are expected to take the biggest hit as sponsor companies “tighten their belts,” the publication notes.

Copyright M2 Bespoke 2016

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