Workplace pensions ‘increasingly unsustainable’ due to falling govt bond yields - deVere

Workplace pension schemes are becoming “increasingly unsustainable” due to the recent fall in government bond yields and low interest rates, according to deVere Group CEO, Nigel Green.

He warned that the decline in the yields of government securities due to the Covid-19 crisis has particularly affected pension schemes as they traditionally invest heavily in government bonds.

“Institutional investors, such as pension funds, have always traditionally invested in government bonds, as they’re widely regarded as a safe-haven,” Green stated.

“However, the world has changed considerably in six months.”

Green noted that government bond yields were declining worldwide due to the record-breaking asset purchase schemes that were introduced by central banks to help ease a potential global economic slump following the coronavirus pandemic.

Furthermore, he warned that the pressure on bond yields was likely to “intensify”, as the banks’ measures are set to remain or be expanded.

“The far-reaching stimulus agendas and more than a decade of ultra-low interest rates – which could be going even lower - are creating a perfect storm for company pensions, which are already feeling the squeeze of ballooning deficits,” he added.

“Increasingly, no longer are government bonds delivering the returns required to fulfil the obligations made to retirement savers.

“The falling yields have forced pension funds, and other institutional investors, to make highly unusual changes to their asset allocation mix as they seek out better returns in riskier assets.

“But then, the question is: If pension funds don’t buy government bonds, who will?”

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