Market volatility hits pension scheme assets
The last few days have witnessed some of the most volatile equity market conditions since October 2008. At one point on Monday, the FTSE100 was down around 400 points (or around 6%) while the Dow Jones initially plunged over 1,000 points before recovering to close “only” 500 points lower. Current conditions are, however, very different to those in 2008 when Lehman Brothers collapsed and the stability of the entire financial system was in question.
Chinese economic weakness and its knock-on effects for other economies have been major factors in the uncertainty. A combination of a general lack of trust in published Chinese economic data, uncertainty regarding the country’s exchange rate policy and a realisation that the authorities’ willingness and ability to support markets is not as strong as perhaps thought appear to be making it worse.
China is not the only reason for the volatility. Widespread emerging market weakness, uncertainty over the timing and impact of US interest rates as well as broader geopolitical concerns have all fed investors’ fears.
Comment
Downwards volatility always feels uncomfortable. However it is a fundamental part of the nature of equity markets and so is to be expected from time to time. Pension scheme trustees are generally amongst the longest-term investors, so they should avoid panicked reactions to such events and focus on how their asset portfolio is designed to meet scheme benefit payments both now and over the long-term.
Regulator calls for trustee action on DC standards
The Pensions Regulator is contacting trustees of defined contribution (DC) pension schemes to remind them of their duties in relation to the governance and charge control requirements introduced in April (see Pensions Bulletin 2015/14).
Particularly urgent is the requirement to notify employers, members and the Regulator by 5 September for schemes used as auto-enrolment qualifying schemes that are intending to use the “adjustment measure” provisions because they are unlikely to comply with the charge cap requirements. The “adjustment measure” provisions disapply the cap for a default arrangement in some situations (as outlined in this Pensions Regulator guide). One of the conditions of use is that the trustees must notify employers, members and the Regulator at least one month before they intend to use the measure, which must be in place by 6 October.
Other new requirements included appointing a chair of trustees before 6 July 2015, disclosure of charges and transaction costs on all funds and explaining how the new governance standards have been met in an annual chair’s statement.
Comment
The Regulator is keen to help schemes meet the new DC standards and has produced a number of materials to assist. This latest call is to stimulate action before schemes have to confirm they comply with the requirements on their scheme returns.
This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law. For further help, please contact David Everett at our London office or the partner who normally advises you.
