Following the week that the coronavirus tanked the Dow Jones, it was only a matter of time before ripple effects started to make their appearance.
One of the ripple effects that will likely impact some retirement savers is panic stemming from the virus’ potential impact on public and corporate pensions.
In a recent example from England, an article from The Guardian notes, “Savers are nursing losses approaching 10% in their pension schemes since the start of the coronavirus market panic.”
The article laid out the math:
The stock market rout means someone who had accumulated £250,000 in their pension scheme at the start of this year will have seen it shrivel to about £225,000 on Monday.
Imagine waking up after a restful weekend only to find that 10% of your nest egg – the one you worked for decades to build – had fallen off a cliff.
“That was the oh my God moment where things are not only about to fall apart, but crumble,” says financial advisor Michell Goldberg.
According to an earlier piece on The Independent, this new “black swan” appeared to be impacting pensions back in early February:
“Stock markets around the globe have already been impacted negatively so investors will already have seen falls in some of their holdings in their pensions and ISAs,” says Russ Mould, investment director at AJ Bell. “This will be particularly acute for holdings in China specific funds as well as Asian or emerging markets funds more generally.
A little over a month later, the full impact of the coronavirus on pensions has yet to be felt.
Corporate Pensions Are On the Hook Too
Pension plans at big corporations like GE (which has one of the largest) have been on the chopping block for some time.
A recent article on Barron’s asked an important question about GE’s pension plan as it pertained to this newly evolving coronavirus threat:
Is it just coronavirus fears, or is there something else investors should focus on?
The article continued by giving part of the answer (emphasis ours):
GE also has about a $100 billion retiree pension plan, one of the largest corporate defined-benefit plans in the U.S. “It is concerns about the pension and insurance with rates possibly going to zero,” that Gordon Haskett analyst John Inch blames for recent stock declines… A 0.25% reduction in interest rates can add more than $2 billion to the defined-benefit pension obligation.
The main takeaway is, whether bad fundamentals or panic from coronavirus “infects” a corporate pension program, retirement savers should also pay close attention and stay in touch with their plan administrators.
Either source of panic could cause a pension program (corporate or public) to become a statistic in a heartbeat.
How to Guard against Pension Programs on Thin Ice
The truth is, the majority of public and corporate pension programs have already escalated close to crisis levels. So if yours was to get cut by 10% over a weekend (or stopped), what would you do?
One possible solution is to do whatever it takes to ensure your retirement gets on firm ground as soon as possible.
Consider diversifying your assets and taking back control of your portfolio. One asset class to consider adding is precious metals, such as gold and silver, which can add stability during uncertain times.
Republished by permission of Birch Gold Group.