How will the second COVID-19 wave impact UK schemes? 

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COVID concern indices have been almost stable over the last two weeks. Is the new 5% rise in the personal worry index an early sign of changing sentiment in the face of a second wave of infections? 

A winter in lockdown 

UK pension professionals are concerned to see infection rates rising. A Christmas in lockdown remains likely – the minimum duration of the outbreak is still five months, but the end date keeps shifting, and is now expected in March 2021. 

A return to normality is proving difficult 

The pensions industry remains critical of public pandemic guidance, with some saying it has eroded their trust in the government completely. Despite this, levels of concern started decreasing two weeks ago. Some say the guidance has improved somewhat, but it remains to be seen if the deteriorating pandemic situation in the UK will lead to clearer, albeit stricter measures. 
The second wave comes at a time when UK pension professionals were starting to consider in-person events again. A third (33%) said they are ‘very’ or ‘somewhat’ comfortable with them, compared with just 12% two weeks ago. Several say that as long as public transport can be avoided and measures are being upheld, they would consider in-person events as another step back to normality. Unfortunately, in-person pilot events have been placed on hold, and the more positive sentiment may reverse in coming weeks as the extent of the second COVID-19 wave becomes clearer. 

A global recession threatens the UK pension system 

The minimum expected duration of the pandemic’s macro effects still indicate that economic activity is not expected to return to pre-crisis levels until at least January 2023, while a second lockdown would delay an already fragile economic recovery.  
The risk of global recession puts employers under pressure – since the start of the crisis, roughly 40% of UK schemes have seen their sponsor covenant weaken, a proportion which could well increase. Such a development would be a significant test for the Pension Protection Fund. 

Fiscal, inflationary and regulatory pressures remain 

Our macro rates indices show that more UK pension professionals expect tax rates and inflation to rise as a result of the pandemic than of interest rates – a view which has remained unchanged over the past month. The proportion of those saying interest rates will rise has decreased slightly, although this may change with Brexit. Some believe inflationary pressures will increase in the absence of trade deals, and higher inflation could prompt the Bank of England to raise interest rates too. 

Sector sentiment changes 

While it will take a lot to knock IT, healthcare and communication services from their pandemic ‘winner’ status, sentiment has changed somewhat for several other sectors: 
  • While still neutral overall, the outlook for financials has improved for four straight weeks, possibly as UK pension funds realise the importance of lenders in providing a buffer to recovering businesses. 
  • The outlook on real estate is increasingly negative, perhaps reflecting concerns around valuations now that some property funds which had been gated resume trading. 
  • The outlook on industrials has deteriorated further after some improvement a month ago. 

How worried are you about the second wave and its consequences? Click here to tell us in our bi-weekly survey. 


Previous articles in this series: 


About the COVID Concern Index 

This short survey helps gauge sentiment of our community on the pandemic. The results are distributed via the community newsletter. Until 31/08/2020, this was a weekly survey. From 01/09/2020, the survey shifted to a bi-weekly cadence. 
The COVID Concern Index values should be used as indication only and do not constitute advice. Their values are bound by the choices available in the survey on which they are based. 
COVID Concern Index: 
  • 0 = respondents are not worried at all 
  • 100 = respondents are extremely worried 
Expected minimum duration of outbreak: 
  • Lowest possible value = 1 month 
  • Highest possible value = 6 months 
Expected minimum duration of macro effects: 
A methodology change took place on 15/04/2020, affecting data from 21/04/2020 onwards. 
Prior to 15/04/2020: 
  • Lowest possible value = 3 months 
  • Highest possible value = 12 months 
Following 15/04/2020: 
  • Lowest possible value = 3 months 
  • Highest possible value = 60 months 
Macro rates index: 
  • -100 = respondents think rates will fall 
  • 0 = respondents think rates will stay the same 
  • +100 = respondents think rates will rise 
Sector sentiment index: 
  • -100 = respondents think the sector will be a ‘loser’ in the pandemic 
  • 0 = respondents see a neutral outlook for the sector 
  • +1 = respondents think the sector will be a ‘winner’ in the pandemic 
Concerned about the coronavirus outbreak and its macro implications? Click here to take part in the bi-weekly COVID-19 survey.