According to a new report by the consultancy group Mercer, if the Bank of England raises interest rates as expected, many British businesses could see pension deficits that they have had for years practically wiped out.
"If you bought a basket of these stocks you would probably make money from here," said Andrew Millington, the acting head of UK equities at Aberdeen Standard Investments, which owns shares in firms with big pension liabilities like Tui, BAE Systems and AA that he expects will benefit.
The pensions shortfall of FTSE 350 companies had soared to a record £165 billion. Even after interest rate cuts and gains on equity investments as the FTSE 100 rallied by 8% in the past year, the deficit remains at £65 billion currently but estimates by Mercer say that if the pound continues to decline and the Bank of England raises interest rates, the deficit could quickly come down to about £12 billion.
This remaining shortfall could also be virtually wiped out by another factor at play, with the stall in the growth of life expectancy. Earlier in 2017, Professor Sir Michael Marmot, Professor of Epidemiology and Public Health at University College London said that he had deep concerns that life expectancy growth had stalled since 2010.
"If we don't spend appropriately on social care and if we don't spend appropriately on healthcare, then certainly the quality of life will get worse for older people and maybe the length of life too. Deficits in defined-benefit schemes could disappear, or perhaps even moving to a small surplus over the next year or so."
However, with the current turbulent economic and political climate, such projections about defined benefit pension deficits being wiped out are at the moment just conjecture, with Brexit amongst the many issues that could significantly change the pensions and general financial landscape.
According to a new report, if the interest rates rises, many British businesses could see pension deficits that they have had for years practically wiped out.