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UK defined benefit pension schemes in serious trouble

It has been revealed that the pension liabilities of the U.K.'s defined pension schemes have topped the £1 trillion mark as the sector goes from disaster to disaster. Despite the fact that UK stock markets rose during August the overall deficit between pension liabilities and pension assets increased by £16 billion to a staggering £195 billion. So what next?

When you consider that those lucky schemes in surplus have seen their buffer fall from £53 billion to £21 billion there really are serious problems to contend with in the future. The Pension Protection Fund, which oversees all of the U.K.'s 7400 defined benefit schemes, and ultimately pays out to members in the result of default has questioned the immediate future of the UK pensions sector. It seems that the UK government's quantitative easing program, while instilling further confidence into the UK economy, has driven down bond prices, which has ultimately impacted on the income of many pension schemes.

It is not just the reduction in income which has caused the problem it is also the potential return on the investment of this income in the short to medium term. The fact that many UK defined benefit pension schemes actually switched to bonds for greater security just a couple of years ago is a further irony which has not gone unnoticed.

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