Looming headwinds for pensions despite markets hitting all-time highs

10 Nov 2020

UK pensions face a myriad of looming headwinds – despite global stock markets hitting all-time highs, warns the CEO of one of the world’s largest independent financial advisory and fintech organisations.

As such, retirees, and those on the cusp of retirement, should be making informed decisions now on their pension pots.

The warning from Nigel Green, chief executive and founder of deVere Group, comes as what appears to be a “perfect storm” is brewing for many private pension holders.  

This comes despite world stock markets closing at a new all-time high on Monday on hopes that a new coronavirus vaccine from Pfizer could help economies around the world get back to normal. MSCI’s All-Country World Index was up to a fresh high, gaining by 1.3%, on Monday.

He says: “Pension funds’ investment strategy is typically largely weighted towards equity content, as such how stock markets perform affects retirement incomes.

“This week markets have rallied over optimism regarding the Covid-19 vaccine and President-Elect Biden in the United States.

“However, despite the buoyancy in the markets, there remain some headwinds on the horizon for pensions.”

He continues: “The world has monumentally changed this year, with the far-reaching and severe economic fallout impacting all aspects of work – including remote and hybrid working - and financial life.

“Understandably, these seismic shifts have left many extremely concerned about their current retirement planning strategies.

“Against this evolving and complex landscape, it is more incumbent on major employers than ever before to provide access to expert advice to current and former employees to help them reach their long-term financial goals. 

“It’s an obligation and responsibility, I would argue – despite the many challenges employers currently face.”

The CEO notes that whilst pensions are holding-up reasonably well for the time being, despite the ballooning deficits and the impact of Covid-19, retirement incomes could be eroded if the issues are not addressed sooner rather than later.

“These issues include the second wave of coronavirus adversely impacting the UK and most major economies; the growing possibility of no UK/EU Brexit trade deal, and the Bank of England considering negative interest rates,” observes Nigel Green.

This is why he believes that more than ever “serious, joined-up retirement planning strategies that meet the demand of a new era are urgently required.”

In the summer, he noted that company pensions are becoming increasingly susceptible to the plunge in government bond yields and low interest rates.

“The far-reaching stimulus agendas and more than a decade of ultra-low interest rates - which could be going even lower - are creating a perfect storm for company pensions.”

He added: "Increasingly, no longer are government bonds delivering the returns required to fulfil the obligations made to retirement savers.”

Typically, bonds account for more than half of the assets held by pension schemes.

The deVere CEO concludes: “With the potential for negative interest rates, and the already chronic deficits, amongst other critical factors, company pension holders should be demanding from their employer access to an independent financial adviser to discuss ways to safeguard and grow their retirement income.”