Trustee reactions to Black Monday

Awakening on Monday 24 August to the news announcement that it was in fact “Black Monday” was disappointing for many reasons:

1. It was Monday.
2. Black Monday turned out not to be the same as Black Friday, that is the Friday in November where major retailers offer massive discounts on a vast amount of sought after goods to mark the beginning of the Christmas shopping period.
3. It transpires it had been a fairly bad day for the stock market.

Most people will be able to relate to the first of these 2 disappointments with investors more likely to be worried about the third. For the pension scheme Trustees amongst us number 3 may also have caught the eye. This may have raised concerns about your scheme investments with the news reports and analysis which emerged in the following days certainly doing little to calm nerves.

However “Black” the day was, it should not prompt knee jerk reactions and Trustees rushing to the trading floor shouting “Sell, sell, sell!”, but should in fact highlight the need for Trustees to take a measured approach to the investment strategies of the pension schemes which they oversee.

Pension scheme liabilities should be considered over the long term with investment strategies that are term appropriate to the liabilities held. When considering where to invest scheme funds, Trustees should take measured actions with the guidance of their advisers. This should take into account the funding position, the medium and long term goals and the ability of the Employer to support the downside risk.

Short term reactive thinking is rarely appropriate in this context where assets are involved in a long term investment cycle, not a weekly one. If your Scheme was looking to buy out imminently or your Employer covenant could not support equity volatility then the Scheme should already have taken these risks off the table.

Reports of £30bn being added to UK pension scheme deficits overnight, whilst entirely plausible, should not have extensive long term effects on too many people or schemes.

And in the same way that the Black Friday sales can prompt us to consider if we really need that amazing gadgetry thing in the long term or if it’s only useful for the next 6 months until the new version is released, take #BlackMonday as an opportunity to consider the short and long term needs of your pension scheme.