It is now three months since the historic Brexit vote and frankly, we are still firmly in the realms of extreme uncertainty, despite each of the two camps apparently becoming ever more certain that they were right.
Every new economic statistic, profits warning or forecast is greeted with feverish speculation – with both sides often using the same information to bolster their own case.
The selective use of statistics and the ignorance of some comparisons are just further symptoms of the extremely polarised views.
Interpreting the facts
The world of pensions is sadly as susceptible to this phenomenon as any. My favourite example is the hot debate over the interpretation of the movement in the FTSE 100 shares index.
The selective use of statistics and the ignorance of some comparisons are further symptoms of the extremely polarised views
This index fell by 5.6 per cent on the first day after the vote, but has since risen by 15 per cent at the time of writing (and counting, hopefully).
The rise is surely partly attributable to the impact of foreign earnings being worth more due to the collapse in sterling, which is down 15 per cent against the dollar and 12 per cent against the euro.
It may still fall again if Brexit means hard Brexit rather than just Brexit – but it certainly has not been a clear-cut result either way.
It is even harder to assess the hypothetical comparison of where the index would have been by now if we had had a Remain win.
Drop in funding levels
What is absolutely clear already is the dramatic impact that a lower base rate and more quantitative easing has had on pension scheme funding due to the lower gilt yields now available.
Consultancy JLT Employee Benefits has estimated a 4 per cent drop in the funding level of defined benefit schemes across the UK over the past year, despite substantial deficit contributions and good investment returns.
LCP said the deficits for FTSE 100 companies rose by 37 per cent in a single month after the Brexit vote, and Hymans Robertson’s research has suggested total deficits are now in excess of £1tn on a buyout basis.
What Brexit means for your scheme’s derisking strategy
Video:Susan Anyan from Capital Cranfield and Jay Shah from PIC break down the impact of Brexit on schemes’ ability and desire to derisk.
Some sponsoring employers face the double whammy of a swelling deficit and a business under threat from the changed trading environment.
But there is no need to panic, and the volatile markets do bring some opportunities for pension schemes as well as employers.
Hugh Nolan is president of the Society of Pension Professionals and director at consultancy Spence & Partners
