Pensions Policy Institute – Industry view Chris Curry, director at Pensions Policy Institute (PPI


For individuals, seeing the value of your pension fund fall significantly can be alarming and waiting to see if it recovers is no less stressful. Hopefully the wide- spread use of defaults will save most indi- viduals from compounding the situation by making poor investment decisions in a turbulent market. However, some are likely to be tempted to withdraw pension pots, if able due to age, to stop contribut- ing or change investment strategies with- in their scheme. These behaviours could result in lifelong reductions to retirement income. Those reinvesting may get lucky, but buying and selling during a time of turbulence


could


Daniela Silcock, head of policy research at Pensions Policy Institute (PPI)


THE LONG- AND SHORT-TERM PENSION IMPLICATIONS OF COVID-19


The current situation is uncertain and frightening for everybody and we are likely to be feeling the impacts for years, if not generations, to come. At such times it can feel inconsequential or irrelevant to try and think long term, but it can be help- ful to try and at least consider how what is happening today will affect us all in future, including our finances. The most immediate impact on pensions has been the significant falls and subse- quent volatility in the stock market. This affects the value of defined contribution (DC) pensions for individuals, and the fund- ing position and security of defined benefit (DB) pensions for scheme sponsors.


result in significant


losses. The situation is likely to be most serious for those already in retirement who have remained invested in draw- down products and whose immediate income may be at risk.


DB scheme sponsors and trustees will face


intense and difficult discussion


between themselves and The Pensions Regulator to find a way forward, made more complicated if the sponsor is also more vulnerable due to the unique eco- nomic circumstances. Some assistance arrived on 27 March, with the announce- ment that DB to DC transfers would be frozen for three months, stabilising scheme funding positions temporarily and protecting DB members from scammers encouraging them to sell. The regulator has allowed schemes to delay paying pension recovery plan contribu- tions, that could


have put company


finances in jeopardy at this uncertain time.


There will be longer term impacts as well as those in the short term. Increased


unemployment and lower earnings will reduce the capacity for pension saving, leading to lower long-term incomes. There were rumours that the requirement to make automatic enrolment contribu- tions may be suspended to ease short term pressure on employees and employ- ers. Since then, the government con- firmed that it will cover employer Nation- al Insurance and pension contributions of furloughed workers, on top of 80% of sal- ary (up to a cap of £2,500) indicating that the requirement may not be lifted after all. However, not all employees who lose their jobs will necessarily be eligible for the government’s furlough pay and those who are will receive lower pay and lower contributions.


It may well be essential to refocus and rebalance short term and long-term prior- ities, but in doing so we must be mindful not to just push the problem further into the future. If in doubt, or panicking, the best response for some will be to do noth- ing out of the normal, but just keep calm and carry on.


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ISSN: 2045-3833 Issue 92 | April 2020 | portfolio institutional | 15


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