Total UK private sector defined benefit liabilities are now in excess of the UK’s total GDP of £1.8trn.
Figures from pensions consultancy Hymans Robertson put the total liabilities at more than £2trn.
The firm attributes the change to long-term low interest rates and quantitative easing, pushing up liabilities faster than economic growth.
Hymans Robertson partner Calum Cooper says DB schemes are also paying out more than received in contributions, meaning that schemes must move quickly to derisk and better align their investment strategies with income requirements.
Cooper says: “The life assurance sector has been hit hard by George Osborne’s freedom and choice in pensions, which has caused sales of individual annuities to collapse.
“Insurers are looking to offset this lost income by entering the corporate pensions market. The conditions are good, but pension schemes will need to move quickly to take advantage of this short window of opportunity.”
For better investment, Cooper says schemes must avoid the risk of long-term growth assets, focusing instead on investment grade credit options over equities and growth funds.
He adds : “It’s important to make sure that cash is easily available when it’s needed, without a fire sale, to pay the pensions promised.”