Stockmarket turbulence prompts care over pensions

Stockmarket turbulence should prompt employers to that pension schemes’ assets and liabilities are well-matched, and to supply financial education.

Pension scheme deficit volatility will continue despite an improving trend in funding levels, according to Mercer Human Resource Consulting’s latest FTSE 350 Pension Scheme Survey.

Although the de-risking of defined benefit pension schemes continues, the survey showed that for the most exposed 5% of the FTSE 350, the median impact of a 1-in-20 year adverse event (such as, a major collapse in equity markets combined with low interest rates) could reduce their market cap by at least 12%.

In light of recent stock market volatility, John Hawkins, a principal in Mercer’s Financial Strategy Group, said that schemes that do not de-risk their schemes by matching assets and liabilities will continue to see volatility.

Separately, Charles Cotton, pay and benefits expert at the Chartered Institute of Personnel and Development, said that the stockmarket turbulence highlights the need for employer-provided financial education. “Employers may stop, or cut back on their contributions to these schemes [defined contribution pensions and employee share plans]. However, by educating them about the long-term nature of pensions and share plans and their tax advantaged status this risk can be reduced.

“This comes against a backdrop of increasing mortgage costs for many workers, with some tempted to stop saving for their future by focusing on their mortgage repayments,” he explained.†

By providing financial education, employers can help their staff acquire the financial knowledge that will allow them to find the best mortgage deals allowing them to make further retirement savings.