British businesses need to stump up an extra £10 billion per year over the next decade to cover the pension deficits built up in the aftermath of the Brexit vote.
The shortfall for defined benefit pensions schemes - which guarantees a retirement income linked to final salaries - jumped by £90 billion last year to stand at £560 billion by the end of 2016 amid a notable drop in British government bond yields and a cut to interest rates.
“If companies tried to repair the additional deficits which arose during 2016 within 10 years, this would cost an extra £10 billion per year,” a report by PwC said.
It showed that the referendum alone sparked an £80 billion shortfall within just 24 hours, with the deficit rising from £510 billion to £590 billion between June 23 and June 24.
It was made worse following the Bank of England’s post-Brexit stimulus package, which cut the benchmark interest rate to a record low of 0.25%, ramped up its quantitative easing (QE) programme - which sees the bank print money to buy government bonds - by £60 billion to £435 billion, and began a £10 billion corporate debt purchasing scheme.
That move in early August decreased yields by making bonds and stocks more expensive, which ultimately bit into financial returns. The cut to interest rates also hurt returns on cash deposits.
PwC’s Skyval Index, which gives a snapshot of the health of the UK’s 6,000 defined benefit pension funds, shows that the deficit peaked at £710 billion at the end of August before staging a slight recovery in the final months of the year.