No-deal Brexit could increase DB liabilities by £140bn

A no-deal Brexit could increase UK defined benefit pension scheme liabilities by more than £140bn, analysis from Columbia Threadneedle Investments has found.

In the event of a no-deal, DB schemes could see their assets boosted by around £90m, offset by an increase in liabilities of over £140bn.

The UK is set to leave the European Union on the 29 March and negotiations on the terms of its departure has thought to have reached deadlock, with the EU unlikely to agree an extension to the negotiation period.

Prime Minister Theresa May has said she plans to go ahead with the meaningful vote tomorrow, 12 March, where MPs will decide on May’s deal.

The analysis, which modelled three scenarios, found that a more “disorderly” departure would cause a fall in gilt yields and the value of sterling, resulting in the increased deficit.

Columbia Threadneedle head of global asset allocation, Toby Nangle, said: “Given that the system-wide aggregate funding position is roughly in balance ... it appears that the knock-on from our financial market scenarios are that a no deal Brexit would push the system into a circa £55bn deficit, while a softer Brexit would push the system into an circa £85bn surplus.”

“And so from a pensions perspective the short-term impact of the next steps for Brexit look to be a question worth around £140bn.”

According to the findings, a softer Brexit would lead to a more “integrated relationship with Europe”, leading to “meaningful currency strength” and a boost to the earning expectations of domestic firms.

Despite this, a soft Brexit would be expected to wipe around £90bn of assets, while also taking roughly £180bn of the total liabilities.

Following the referendum, Columbia Threadneedle estimates that asset values have been boosted by around £125m, while liabilities have also increased by £160bn.

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