UK - Scheme costs will change radically if Britain joins the euro, but it is far from certain whether they will go up or down, experts say.
The Cabinet is currently debating whether the UK should enter the euro and Chancellor Gordon Brown will announce its decision – based on the “five economic tests” – on June 9.
For pension funds, entry to the euro would either mean a steep increase in costs – if gilt and bond yields fall – or huge cost savings if the move to a single currency means that bonds and gilts become more available in a pan-European market.
Hewitt Bacon & Woodrow principal Raj Mody said pension funds should be prepared to meet any changes if the Chancellor decided Britain should join the euro.
“We need to be aware that there could be a step change on the cost of pensions.
“From a pension scheme perspective both companies and trustees need to be ready to react to that.”
Buck Consultants senior investment consultant John Walbaum noted joining the euro would mean that one of the risks of investing in the eurozone would be eliminated – which would mean greater freedom of investment.
He said: “For pension schemes, the currency risk of investing disappears and the domestic market for investment will become pan-European.”
Schroder Investment Management UK and eurozone economist Stuart Block stressed that it was probable that the cabinet would conclude that the UK was not ready to join the euro and that a referendum would not yet be held.
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