Recent Updates

Scottish Independence May Hit Pensions

A House of Lords report will this week reveal that if Scotland does become independent after next year’s vote then the cost of providing state pensions north of the border will spiral!!

Scotland has a faster aging population than anywhere else in the UK the report claims and therefore will have serious funding implications for a Scottish Government meaning either huge tax rises or a cut in benefits.

Frank Field, the UK Government’s appointed Tsar, has suggested the welfare bill for Scotland will just be unaffordable and that the welfare bill for Scotland would have to rise from about 14% of GDP to over 50%!!

The committee is also going to report on the controversial subjects of North sea oil and make recommendations on dividing up the UK national debt.

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Osborne has no choice but to curb pension benefits

An analysis of government data suggests that UK Chancellor George Osborne will not be able to achieve the goal of limiting welfare spending without cutting special benefits to pensioners.

Research by the Social Market Foundation has shown that the main expense in welfare spending in the next five years will be the growing number of elderly people entitled to a pension and the universal benefits such as winter fuel allowance and free TV licences.

Meanwhile, UK Prime Minister David Cameron has pledged to protect such elderly benefits, aware that they are important to the upcoming elections. In fact, the decision to raise most benefits by a below-inflation 1% and changes designed to stem the rising cost of disability benefits take effect on Monday.

Furthermore, pensioner benefits and debt interest are set to cost even more in the years ahead – leaving Osborne with tough decisions as he oversees the spending round scheduled for June 26.

Angus Hanton, co-founder of the Intergenerational Foundation, a charity that campaigns for fairness across the generations, calculated that the UK government’s pension liabilities amount to more than £200,000 for each UK household – “so the question is not whether young people will reject this burden, but when”.

“Pensioners are treated as a protected species but as a group they are dependent on younger workers – Mr Osborne is taking a slash and burn approach to working age benefits in order to isolate pensioners from the real world.”

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Pension deficits increase by £26 billion in March

According to JLT Pension Capital Strategies the Total deficit for all Uk Private Sector Defined Benefit Schemes increased to £143 billion as at 31 March 2013 which is an increase from £117 billion as at 28 February 2013, representing funding levels of 89% and 91% respectively. The continued increase in deficits will come as a surprise to many individuals especially considering that global markets have, on the whole, increased during 2013 with both the S&P 500 and Dow Jones reaching record highs.

So why have scheme deficits not improved in line with global equity performance?

Unfortunately the vast majority of schemes have been actively exiting equity investment strategies in favour of perceived lower risk investments such as high quality corporate and government bonds. In fact, at the end of 2012, FTSE 100 pension schemes had on average 56% of their assets invested in bonds.

Bond yields have fallen over the past couple of years as investors burnt by the financial crisis all seek the same “safe haven” investments such as UK Government bonds and this coupled with the Uk’s aggressive quantative easing program has ensured that bond yields have remained at near record lows. Just when there was a ray of light and bond yields were starting to rise the Cyprus banking crisis came along which is likely to be a key catalyst in keeping UK bond yields low as the UK is considered a safer haven for money than many countries within the troubled Euro zone.

2012 was a very difficult year for pension schemes and it is our view that 2013 will be no different.

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