Pensions aren’t anyway near the main concern for most people at the moment, with the industry having proved pretty robust in the face of a global pandemic that can only be described as unprecedented. A lot of schemes had investment strategies in place that have largely mitigated the impacts of incredible volatility in markets and stocks that have fallen by over a third. Administrators have managed to keep paying pensioners reliably and promptly every month. Even the quasi-Governmental Regulator has responded positively to the situation, with a pragmatic and sensible approach that recognises the difficulties faced by many sponsoring employers and allows even more flexibility than usual.
But there is often a sting in the tail for pension schemes. Some schemes had deliberately adopted a policy of investing in growth assets like equities as their only hope of removing sizeable deficits. Sponsoring employers who had been struggling to meet the rising financial demands of their schemes over the years had to rely on investment returns to remove this millstone from their necks. Such schemes may have seen material falls in their funding levels that make a difficult situation seem completely impossible now.
My message to these schemes is simple. Don’t give up hope! Although nothing can be absolutely guaranteed, I am confident that markets will eventually recover most of their losses from the last couple of months. I’m sure there will have been a real hit from the pandemic in the final analysis and GDP in Q2 will be absolutely dire but current predictions are that the economy can rebound strongly later in the year. It took a couple of years for normal service to be resumed after the credit crunch and could take even longer after the virus crisis. However, there is every chance that we will get back to normality soon enough for most pension schemes to get through to the other side safely, even in very challenging circumstances.
My colleague Simon Cohen, our Head of Investment Consulting, has obviously been watching market developments closely and continually reminds me not to panic about the falls we have seen. Pension scheme funding is a long-term venture and the extreme volatility we have seen recently is just a specific example of what we always knew could (and probably would) happen from time to time. Actuarial valuations can allow for an expected bounce in the markets at some point and longer recovery periods can be agreed where needed. Investment strategies can implement trigger points to derisk portfolios when market opportunities present themselves. Members can be reassured that their pensions are well protected, with funds held separate from the employer, with companies still committed to funding the schemes and with the PPF lifeboat in the background. Trustees can be supported and helped to keep making the decisions that are best for the schemes, however difficult those decisions may seem just at the moment.
Some people may wish they’d taken more control of their pension schemes before the pandemic hit us. It’s never too late to take positive action though and there are still ways to plan for the future with a degree of optimism. As they say, the best time to plant a tree is 20 years ago and the second best time to plant one is right now!
Stay safe everyone and we’ll see you on the other side.