Has the COVID Crisis Spilled Over to Pensions? (w/ Leo Kolivakis)

TL;DR

The pandemic is significantly affecting pension plans worldwide, with declining assets and low interest rates causing rapid deterioration of funded status.

Transcript

ED HARRISON: Welcome to Real Vision. Here I'm talking to Leo Kolivakis who is the founder and editor, publisher of Pension Pulse. You're a pension expert, Leo, and I'm talking to you because we're in the middle of a crisis that really I think is affecting pensions and I want to get your perspective on what the effect exactly is on pensions, their s... Read More

Key Insights

• 😘 Pensions are facing dual pressures from declining asset values and low interest rates.
• 🌱 Well-funded pension plans have a better chance of weathering the crisis and capitalizing on market opportunities.
• 😀 Underfunded pension plans may struggle to recover and face challenges in taking advantage of market dislocations.

Questions & Answers

Q: How are pension plans being affected by the pandemic?

Pension plans are facing losses on their assets due to economic shutdowns, while declining interest rates increase liabilities and deteriorate funded status.

Q: What is the impact of underfunding on pension plans?

Underfunded pension plans, especially those already in a chronically underfunded state, will struggle to recover from the crisis due to simultaneous asset and liability pressures.

Q: How are Canadian and US pension funds faring during the crisis?

Canadian pension funds, which entered the crisis well-funded, have a cushion to withstand the impact. They can capitalize on market dislocations and recover ahead in the future. In contrast, many US pension funds were already underfunded, severely limiting their ability to recover and take advantage of market opportunities.

Q: How are strong balance sheets benefiting Canadian pension funds?

Strong balance sheets enable Canadian pension funds to take advantage of market dislocations by investing in public and private markets. They can leverage their balance sheets and borrow more at low interest rates, which is not feasible for many US pension funds with weaker balance sheets.

Summary & Key Takeaways

• Pensions are experiencing losses on their assets due to global economic shutdowns, as synchronized closures across economies impact spot markets.

• The decline in interest rates has also worsened pension liability, leading to a rapid deterioration of funded status.

• The strength of a pension plan's balance sheet and funding status before the crisis determines its ability to weather the storm and capitalize on market dislocations.