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PMI
Investment, administration and COVID-19
16 July 2020

Investment, administration and COVID-19

A sea change in the world of investments and pension administration.

The world of pension administration has risen robustly to the challenge of COVID-19 and continued to deliver services to pension schemes without interruption. Amid the general storm there lurk less obvious consequences of the pandemic that are equally important. We have seen large daily swings in global equity markets equivalent to a dinghy going around Cape Horn and this, inevitably, impacts the administration of pensions in a number of ways.

Most directly affected are those members who have benefits in Defined Contribution (DC) arrangements including Defined Benefit (DB) members with Additional Voluntary Contributions (AVCs) invested in this way. Members coming up to retirement will be directly affected and need to be alerted to the risks. Equally, members in self-select DC investment strategies might also need to consider their choices, particularly if they are within sight of their target pension age or are approaching age 55.

Whilst administrators cannot advise members, they can point out issues of which members should be aware and point them towards guidance and advice. As a minimum, transfer and retirement quotations should carry new warnings for members that values can change quickly and move in the wrong direction. They should also remind members that given the current uncertainties, they could seek advice on what to do from qualified advisers; administrators can legitimately add https://www.unbiased.co.uk to their communications.

Websites have come into their own during the crisis as an efficient way of getting messages to members quickly, and telephone helplines can

give key messages instantly to highlight risks and direct them to further helpful information.

Changing tides

Members themselves may be asking to reduce contributions or defer retirement as a means of protecting their income or trying to recoup some of the investment losses. Administrators need a fast track to the trustee or sponsor to raise these queries and inform them of changing trends so that clients can react quickly and effectively. This means generating relevant data regularly and swiftly rather than months later when it may no longer be of help. Agility has been a key word for administrators throughout this crisis and the ability to adapt quickly to change is paramount.

Keeping the flow

DB schemes are also impacted by the investment turmoil. We have seen a material increase in bereavement settlements and retirements during the crisis. When higher than average settlement volumes condense into shorter periods, they can have a material effect on cash flows. The management of cash flows, both in an actual and predictive way, are vital to ensure timely payments to members and beneficiaries. This is particularly important to mature DB schemes that have to disinvest to meet cash-flow requirements. In turn, this can directly impact investment strategy.

The pandemic, hopefully, is subsiding but the work in its wake is ramping up.

Notes/Sources

This article was featured in Pensions Aspects magazine July/August edition.

back to Pensions Aspects Magazine

Last update: 27 January 2021

Lorraine Harper
Lorraine Harper
Mercer
Administration Proposition Leader

Head of Professional Services

Salary: £65000 - £85000 pa

Location: Leeds, West Yorkshire

Pensions Transition Manager – flexible working

Salary: £40000 - £65000 pa

Location: East Sussex

Junior Project Manager 12 month FTC

Salary: £20000 - £25000 pa

Location: County Durham

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