New report says climate change could undermine pension investments by damaging economic growth and financial markets

Climate change now poses a growing threat to trillions of pounds held in UK pension savings, according to a new report.

It warns that the increasingly extreme weather could damage investment returns and retirement incomes.

The Society of Pension Professionals (SPP) said more frequent and severe weather events are disrupting supply chains and reducing economic productivity.

It also warned that it's increasing pressure on the financial system, creating risks for pension schemes and long-term savers.

SPP president Calum Cooper said: "Put simply, you can't separate the future of pensions from the future of the economy.

"And you cannot separate the future of the economy from climate change.

The warning comes as Britain has experienced a spell of exceptionally hot weather that has caused widespread disruption across the country.

Friday marked the third consecutive day that June temperature records were broken, with temperatures reaching 37.3C in Suffolk.

The extreme heat caused disruption across transport networks and forced hundreds of schools to close.

Healthcare services also came under pressure, with six NHS trusts declaring critical incidents after demand exceeded capacity during the heatwave.

Scientists have warned that extreme heat events are expected to become both more frequent and more intense as global temperatures continue to rise.

The SPP report said many economic and financial models may not fully reflect the increasing likelihood of repeated weather-related disruption or the policy changes that may follow.

Mr Cooper said: "Climate change is no longer a future risk for pension schemes, it is a present-day financial reality.

"The decisions trustees, policymakers and investors make over the next decade will help determine not only the value of pension assets, but the retirement outcomes of millions of savers."

The report warned that investments with significant exposure to climate-related risks could face immediate reductions in value.

It also said the wider economy and financial system could experience increasing disruption over the longer term as climate-related risks intensify.

According to the report, pressure is already emerging in insurance markets, property values and public finances in areas most exposed to environmental change.

The analysis also warned that extreme weather, rising temperatures and sea level increases threaten physical assets, infrastructure and workforce productivity, while placing additional pressure on Governments, insurers and infrastructure providers.

Former Bank of England governor Mark Carney, who is now serving as Canadian prime minister, previously described climate change as an existential threat to the global financial system.

In 2019, he urged banks, insurers and financial regulators to make climate risk monitoring part of their routine supervisory work.

Earlier this month, Sir Sadiq Khan launched London's first heat plan to help the capital prepare for periods of extreme temperatures.

The Mayor of London said the 2022 heatwaves cost the capital an estimated £1.5billion through reduced productivity, higher energy bills and disruption to transport services and schools.

The SPP added that insurance markets are also coming under increasing strain, with pension funds relying on them to convert retirement savings into annuities, making the sector particularly exposed to the financial impacts of climate change.