The Office for Budget Responsibility warns of a significant decline in demand for UK government bonds from pension funds, potentially raising the country's borrowing costs by at least £20 billion over the forthcoming decades. This decrease in appetite for bonds, particularly from defined benefit pension schemes now dwindling, threatens public finances. The OBR predicts that gilt yields could rise by 0.8 percentage points, adding substantial debt servicing costs. The shift towards defined contribution schemes reduces bond holdings, requiring the UK to attract other buyers for its debt.
A sharp decline in demand from pension funds for long-term UK government bonds could drive up the country's borrowing costs by at least £20 billion over the coming decades.
The OBR estimates that this shift could add 0.8 percentage points to long-term gilt yields, increasing debt servicing costs by £22 billion. That figure may be conservative, given that public debt is expected to rise significantly.
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