While the FTSE 100 registered the biggest one-day gain since 2008, bulk annuities seem to be significantly more affordable than they were before. At the same time, alternative assets have not seen the biggest impact yet. Read our round-up of pensions and finance news about the coronavirus outbreak.
FTSE keeps rising after 9% bounce
UK shares were moving skywards on Wednesday morning, after closing up 9 per cent the previous day on hopes of a US rescue package and following the UK’s lockdown. The FTSE 100 closed up 9.1 per cent on Tuesday – the biggest one-day gain since 2008 and the second-biggest daily jump on record – while the FTSE 250, which is more exposed to the UK domestic economy, rose by 8.4 per cent. The indices were reacting to the US inching closer to unveiling a rescue package set to shore up businesses and employees against the economic impact of the coronavirus crisis. News this emergency lifeline had been thwarted in the Senate caused markets to slip this week, but last night US lawmakers struck a $2trn (£1.7trn) stimulus deal to help those hit by the pandemic.
Bulk annuity pricing falls due to market turmoil
The price of bulk annuities is being rapidly affected by the current market volatility, according to XPS Pensions Group. Harry Harper, head of risk transfer at the pensions consultancy, explained that for those schemes that are already holding gilts, “bulk annuities are now significantly more affordable than they were”. For those holding equities, bulk annuities have become less affordable, he noted. “A driving factor is the economic turmoil that has made the credit assets that insurers buy cheaper, and due to there being eight insurers in the market there is considerable downward pressure on bulk annuity pricing. There has already been evidence of price cuts,” he said.
Impact on alternatives could be significant
While the impact on alternative assets is less observable to date, it is likely to be as significant as that for public markets, Mercer has warned. The consultancy published a paper on Wednesday – ‘Impact of Covid-19 on alternative assets: Investment implications’ – which stated that “the severity of the impacts across alternative asset classes is likely to depend on both the depth and breadth of the crisis”. The research showed that for private markets, the 2016-19 vintages will be impacted the most since they have the largest unrealised portfolios. “Returns for earlier vintages are pretty well baked-in and will be less impacted,” it stated. For secondaries, pricing off the December valuations will be challenging and, as a result, Mercer would expect to see lower transaction volumes through to at least May and possibly June, it concluded.
