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Company pensions at risk from low bond yields

20 July 2020

Company pensions are becoming “increasingly unsustainable” due to a plunge in government bond yields and low interest rates, deVere Group CEO Nigel Green has warned.

Green says: “Institutional investors, such as pension funds, have always traditionally invested in government bonds, as they’re widely regarded as a safe-haven. However, the world has changed considerably in six months.

“Around the world, government bond yields are plunging as a direct result of the record-breaking asset purchase schemes introduced by central banks to help ease a severe worldwide economic slump due to the pandemic.

“And as the historic stimulus is set to remain, or even be expanded, the pressure on bond yields is expected to intensify.”

According to Green, far-reaching stimulus agendas and more than a decade of ultra-low interest rates are creating a “perfect storm” for company pensions, with government bonds no longer delivering the returns expected by retirement savers.

Green adds: “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?

“Typically, bonds account for more than half of the assets held by pension schemes. Due to the falling bond yields, the potential for negative interest rates, and the already chronic deficits, company pension holders should seek with their adviser the available ways to safeguard their retirement income.”

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