Pension plans identified “re-assessment of asset management strategy” and “higher member and/or employer contributions” as their top responses to COVID-19 (29% and 26%). This applies across all respondents except for large plans, which chose “increased focus on responsible investment” (19%) as a distant second-place choice to strategy re-assessment (41%). Private-public plans picked “increased focus on alternative investments” as their #1 response, tied with strategy re-assessment (31%).
What do you expect to be the most significant change for your pension plan due to the economic impact of COVID-19?
*Including closure or wind-up of plan; increased focus on risk management; minimal impact; re-assessment of fixed income strategy; reduced member benefits; and shift to defined contribution plan
Changing it up
- Higher pension contributions
loom on the horizon
Preparing for the next norm
While the full economic impact of COVID-19 has yet to play out, it seems appropriate for pensions to re-assess their asset management strategies at this juncture. What is the appropriate asset mix to achieve desired returns? What is the appropriate investment style to achieve desired risk preferences and growth/value orientations?
Over the past number of years, Canadian pension plans have been reweighting their asset mix and exploring various types of alternative investments to provide higher risk-adjusted returns over the longer term and to enhance the sustainability of their plans. This is likely to continue as managers re-examine their asset management policies (see Sustainability, De-Risking and Alternative Investment sections).
However, strategy refinement appears to be only a first step in dealing with the aftermath of COVID-19. Additional member and/or employer contributions are high on the list of options and responsible investment is also at the forefront, driven by passionate discussions around climate change and racial inequality. Finally, geopolitical uncertainty is unlikely to disappear anytime soon, while looming demographic changes and the aging of Canada’s population—a key focus of pensions prior to the pandemic—will require attention.
There is much to consider in preparing for the next norm.