It has been a long time since I have seen the market crash. Eleven years ago, I stared at a legacy Bloomberg terminal wondering if the world’s major stock indices knew no bottom.
Since 2008, much has occurred to strengthen the resilience of the financial system, from bank recapitalisations to tougher regulations. But none of these actions can prevent the evolution of business cycles: production, consumption, markets, house prices all go up and down. This is a healthy and necessary long-term mechanism to keep our economies sound. Unless you believe this is the end of capitalism, you should expect a recovery in markets and pension balances.
You should expect a recovery in markets and pension balances
Nevertheless, it is always unpleasant to see such market volatility and to read reports of loved ones succumbing to illness. In the context of the events of the last week, I’d like to explain what we at PensionBee did to prepare and what we are doing next.
The global financial crisis taught me something crucial: big is important. As markets questioned the health of the world’s major institutions and Lehman Brothers went bankrupt in 2008, the concept of “too big to fail” rapidly emerged. From the very inception of PensionBee, we made an important decision to only work with the world’s largest asset managers. All of our investments are managed by BlackRock (largest globally), State Street Global Advisors (third largest globally) and Legal & General (largest in the UK).
We have always insisted that all of our plans should benefit from 100% FSCS protection
These managers are responsible for organising the custody (or safekeeping) of your pension money and in turn only work with the world’s largest custodians, like Bank of New York Mellon. Furthermore, we have always insisted that all of our plans should benefit from 100% Financial Services Compensation Scheme (FSCS) protection, in the extremely high unlikelihood one of these money managers fails.
Within the investment products we offer, a core element of our proposition has always been diversification, meaning if one type of investment falls, another rises. Over the past week, we saw sharp drops in global equity markets (shares) accompanied by astounding price increases in bonds. As a result, while the FTSE 100 was down 19% in four days, our diversified plans were more insulated.
A core element of our proposition has always been diversification
It is to be expected that most pensions around the UK are experiencing similar volatility and perhaps that is the reason most pension savers are not panicking. I have spoken to a few customers this week, particularly those in the Tailored Plan, our auto-pick option, to assure them that is where I remain invested, that is our default workplace pension plan and indeed that is the default pension plan for all of BlackRock’s employees. I have also spoken to several contacts who have seen this before and simply believe it is an excellent time to invest; after all, one might say investments are “on sale” and just in time for the end of the tax year.
It is an excellent time to invest
In 2018, as markets threatened to turn sour, we learned that our customers approaching retirement and planning to spend their pensions would need more options. Therefore, we introduced our 4Plus Plan, which targets an annualised return of 4% over a 5-year period (consistent with rule-of-thumb recommended annual drawdown rates). We then also introduced the Preserve Plan, which only invests in highly creditworthy companies offering a low-risk, low-return option for our over 50 year old customers who plan to take a substantial part of their pensions in the next five years. We are confident the presence of these alternatives has put many of our customers’ minds at ease.
In addition to your investments, you may be wondering how our team is doing. We are a relatively young team and therefore our immediate health concerns are with our loved ones and those most vulnerable of developing respiratory complications from Covid-19.
We know that unsettled markets can be scary for our customers, so our priority is to remain as available to you as we are during normal times. We made a point of hiring and investing in training over 2019 and our 100-strong team is here to serve you as best we can.
Our 100-strong team is here to serve you as best we can
We are also trialling high-security work-from-home technology that will enable our continued availability to you should the government require the vast majority of people to self-isolate.
As I have explained above, your money is with the largest companies in the world, but you may also be wondering about PensionBee’s financial position. While we have invested in growth, aiming to help as many consumers as we can reach in the UK, we have never been the type of business to throw caution to the wind when it comes to our finances. Our largest external shareholder is State Street Global Advisors, alongside many other investors who have invested over £20 million in the business. Therefore our cash position is exceptionally strong.
Our cash position is exceptionally strong
We are aware that some businesses have started announcing redundancies and we have therefore already communicated to our team that while this period will require spending discipline, we will keep investing in our team and in our commitment to our customers. We are cautiously optimistic about a recovery in markets over the course of this year. 2009, the year following the global financial crisis, the S&P 500 returned over 33%.
To our new potential customers reading this, I encourage you to ask yourself whether you are with a pension provider who cares for its customers as we do, and is prepared for the uncertainty and opportunities that now face all of us. We encourage you to get in touch - we’re always here to help.