Pension schemes in the UK, including those of universities and local government workers, could feel further squeeze after the markets open on Monday since stock markets around the world are expected to witness further volatility after S&P’s US downgrading.
UK pension funds are heavily exposed to equities and suffered its worst performance last week since the depths of the 2008 credit crisis over fears of a double-dip recession triggered by a possible bailout demand by Italy.
“It’s a game-changer. With Europe in the situation that it is, adding the US to the problem is just really bad for world financial markets,” said one fund manager.
Stock markets around the world have lost around $2.5 trillion last week and the losses may be extended after markets open on Monday, which will hit pension funds further.
Nearly 250,000 individuals, including professors and administrative staffs, are members of the over £28 billion Universities Superannuation Scheme. According to latest disclosures, the scheme holds more than 60 per cent of its funds in British and foreign equities.
The Local Government Pension Scheme (LGPS) in the UK is served by 99 retirement schemes with 4.6 million members and has more than half of their £110 billion assets invested in equities.
The market is apprehensive about the status of other AAA rated economies, including the UK, and the fear of another crash which may trigger a double-dip recession is not being ruled out by analysts.
“It is the absence of growth in the US, in Europe and in Britain too, and the absence of a credible plan to get our economies growing again, that is undermining confidence and has sent equity markets plummeting in recent days,” said Shadow Chancellor Ed Balls.
“Families, businesses and market investors rightly want countries to have credible plans to get their economies growing and to get deficits down,” he added.