Crashing out of the European Union without a deal could push up UK defined benefit (DB) scheme liabilities by £140bn, says Columbia Threadneedle Investments.
With just over two weeks until the planned departure date but no way out yet agreed, the asset manager said there is also a £140bn difference between the effect on scheme funding of a no-deal Brexit and a ‘softer' Brexit.
While liabilities would surge by £140bn on a section 179 basis under a no-deal Brexit, asset values would also increase, resulting in a circa £55bn deficit.
On the other hand, a softer departure would slash liabilities by £180bn, but this would be partly offset by a fall in asset values, leading to an £85bn surplus.
Leaving the EU on Theresa May's current negotiated deal, with a transitional period, would also see funding positions improved, but not to the same extent as a softer Brexit.
The main drivers of the potential change in funding position include the impact on gilt yield and sterling values, and the short-term performance of UK domestic assets, as well as the Bank of England's consequent attitudes towards interest rates and quantitative easing.
In a blog, head of global asset allocation Toby Nangle said, however, it still remained impossible to predict the impact while the political process continued with no concord.
"The likely next steps in the political process appear to change from day to day," he said. "We don't have any special insight as to what these steps will be, despite having invested significant time and resources to the analysis of this question.
"Armed with the knowledge of our own ignorance we have taken measures to minimise unwanted risks from asset allocation portfolios rather than position for a given outcome.
"This has meant reducing the risks of sterling strength in sterling-based total return funds that invest internationally, as well as reducing unwanted UK risk in international portfolios so that portfolio risk can be focused on areas where we have a greater information and analytical edge."
The predictions come after, since the EU referendum in 2016, schemes saw a reduction in funding of around £35bn on the back of lower yields and increased gilt prices, but also improved international equities.
According to the Pension Protection Fund's most recent monthly index, the UK's DB schemes had a combined £23.1bn deficit on a s179 basis.
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