A slump in global stock markets triggered by falls in China resulted in the UK private sector pension deficit increasing by £30bn yesterday, according to Hymans Robertson.
The Dow Jones in the US fell by more than 1,000 points and FTSE 100 lost more than 10% of its value, said Hargreaves Lansdown.
Hymans Robertson said the drops, in combination with falling bond yields, had increased the aggregated deficit of UK private sector defined benefit (DB) pension schemes by £30bn in one day.
John Walbaum, partner and head of investment consulting at Hymans Robertson, said schemes should consider switching investments from equities to gilts and other assets such as loans, real estate and infrastructure. He said bonds had the advantage of fixed maturity dates that avoided schemes suffering losses by becoming "forced sellers" to meet pension obligations.
"Our main message to sponsors and trustees is to avoid any temptations to rush into deficit recovery mode, which usually places an emphasis on investing in long-term growth assets [equities]," he said.
"This kind of long-term thinking is increasingly myopic for schemes looking up at a mountain of cash payments in the near term. Specifically, this will not address the risks associated with increasingly paying out significantly more in pensions to retiring members than is being received in cash contributions.
"A different approach is required: slower deficit reduction, taking no more risk than is needed and investing in assets that can be relied upon to pay today's and tomorrow's pensioners."
Lei Mao, assistant professor of finance at Warwick Business School, said: "It seems that the Chinese economy is slowing down faster than expected, and there is expectation that the renminbi will devalue further this year. We are seeing capital drain out of the country and companies with exposure to the Chinese market will suffer.
"The Chinese government is facing a difficult problem in policymaking: it is almost impossible to carry on economic reform to create domestic demand and upgrade productivity when the GDP statistics are so alarming."
