Sion Cole, Head of UK Fiduciary Business, BlackRock, said: “October saw, once again, an increase in levels of global uncertainty as a resurgence of COVID-19 cases and the upcoming US election weighed on markets. In some good news for pension schemes this year, they appeared to weather the storm fairly well with funding levels broadly flat, with the PPF 7800 index down 0.2% to finish the month at 91.2%.
“The resurgence of Covid-19 cases in Europe and the resulting lockdowns at the end of the month caused increased downside risk. Additionally, whilst the prospect of a Democratic sweep was positive for US markets, continued fears surrounding the pandemic weighed on positive sentiment. Around the globe, the S&P 500 fell -2.7%, Europe ex-UK stocks were down -5.4%, and the FTSE all shares was down 3.8%, driven by similar fears to Europe and the US as well as continued concern regarding Brexit. Offsetting somewhat negative returns from risk assets was falling liability values due to an increase in gilt yields. 20 year gilt yields ended the month c.0.05% up, whilst 10 year and 30 year yields were up 0.04% and 0.07% respectively. This leaves liability values up 8% since the start of the year.
“As coronavirus continues to surge, a protracted US election despite a Biden win, and Brexit deadlines looming mean that the path to 2021 remains rocky for UK Pension Schemes. With the UK economy growing slower than forecasts and the furlough scheme extended through to the end of March 2021, Trustees should be mindful of not only the impact to their assets but also the potential knock-on effects to sponsors’ businesses and covenant. What this year has shown is that dynamism is key: now isn’t the time to be setting and forgetting your investment strategy. Close management - or delegation of that management - will be critical to the success of pension schemes through the rest of this year and into next.”
Vishal Makkar, Head of Retirement Consulting at Buck in the UK comments: “The aggregate deficit increased again during October, as markets continued to be plagued by the global pandemic and the reintroduction of lockdowns across Europe, as well as political turmoil in the United States. In the UK, a return to lockdown for many and the continuation of rock bottom interest rates mean that the outlook for pension schemes remains shaky.
“For now, a surge in unemployment and company collapses has been held at bay thanks to various government initiatives. The Treasury has, however, clearly signalled that these will not be available forever and the threat of company collapses in particular, should be of major concern to trustees of poorly funded schemes. The Pension Protection Fund has never been prepared for mass scheme failures and hopefully such a disastrous occurrence will never arise.”
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