The risks and consequences of COVID-19 complacency
Pardon the Interruption
This article is just an example of the content available to mallowstreet members.
On average over 150 pieces of new content are published from across the industry per month on mallowstreet. Members get access to the latest developments, industry views and a range of in-depth research.
All the content on mallowstreet is accredited for CPD by the PMI and is available to trustees for free.
The mallowstreet COVID concern indices are diverging – personal and family worries are down by as much as 17%, while professional concerns have increased by over 13% in the last two weeks. Does this mean pension professionals have become complacent with COVID-19?
Risk complacency may turn into impatience
The expected minimum duration of the outbreak has decreased somewhat, but not enough to shorten the current optimistic horizon of July 2021. But the drop in personal and family concerns suggests our COVID research panel feels familiar with the virus and the required measures. But is this a sign of complacency? Possibly – recent studies suggest that many members of the UK general public say they intend to follow social distancing and other guidelines, but their actions differ from their intentions. A likely reason for this is the gradual normalisation of risk over a period of time – it slowly becomes acceptable.
But comments from some of the members of our COVID research panel suggest this complacency may turn into impatience – several report deteriorating mental health, missing contact with elderly and vulnerable family members, and a growing strain from working from home. What is making them most anxious, however, is the uncertainty of whether current measures will indeed end on 2nd December – something that many think is unlikely.
Should the UK government be more honest with its risk assessment?
Thinking about the latest UK government guidance, 52% now are ‘somewhat’ to ‘very’ worried about it – a proportion which started increasing gradually from the lows registered on the 22nd of September. Concerns about the lack of a clear and decisive strategy persist, leaving many thinking the government does not have a handle on the pandemic and relies too much on individual discretion. Some are also questioning the validity of the data that the government relies on.
But looking deeper in our bi-weekly survey data, a number of UK pension professionals are concerned that there are wide and unaddressed misunderstandings around timelines, while others are asking for a clearer timeline on when things might go back to normal. This is concerning because:
- Much hope hangs on a vaccine being made available as soon as possible – but despite Pfizer’s vaccine being 90% accurate and Moderna’s over 94%, these results are still interim.
- We don’t know how long the immunity effects of a vaccine will last – at present, it appears that antibodies can be lost within several months, requiring frequent vaccine boosters.
- We don’t know how good the vaccines will be when they enter general use – both vaccines use mRNA, but such vaccines have never been used against viral infections.
- We don’t know if the vaccines stop people from transmitting the virus – which means that unless a substantial part of the population is vaccinated, herd immunity remains hard to achieve.
Would it be better for the UK government to be transparent about these unknowns, and the limitations they face when making decisions based on data which is naturally limited by what the science world knows about the novel coronavirus so far? Some in our research panel think so, but the right answer is not obvious.
The economic impact of uncertainty continues to unfold
With huge uncertainty around the virus outbreak, there is no meaningful change to the expected minimum duration of the pandemic’s macro effects, meaning a recovery will not be safely under way until Q2 2023. But the full extent of government measures and the impact on global demand remains to be seen, and there appear to be some worrying signs in our latest data.
Specifically, 47% now say their sponsor covenant is weaker than in March, compared with 40% two weeks ago and 45% at the start of the month. The fluctuation in this statistic has not become a concerning trend yet, but it is one we are watching closely – with some members of the COVID research panel reminding us that the full extent of losses faced by businesses remains to be seen.
Brexit may have knock-on effects
Movements in our macro rate indices suggest that more and more UK pension professionals expect inflation and interest rates to rise in tandem – and the cause for this change in expectations might be the effect of Brexit.
Nearly three-quarters now say that inflation should rise in the post-COVID environment – a proportion last seen at the end of August and start of September. Our research panel believes that on one hand, the cost of working has increased given COVID-19 restrictions, but on the other, Brexit tariffs will make things worse.
Less than a quarter of UK pension professionals expect interest rates to rise, but even fewer expect them to fall. A sharper than expected rise could create a perfect storm for the UK pensions industry – especially given that a consistent 68% expect tax rates to rise, too.
What do you think about the continued uncertainty around the COVID-19 pandemic? Click here to tell us in our bi-weekly survey.
Previous articles in this series:
- 04/11: Sharp rise in COVID-19 concerns before the second lockdown in England
- 22/10: COVID-19 outbreak to last at least until June 2021
- 07/10: Prolonged COVID-19 outbreak is putting pressure on covenants
- 23/09: How will the second COVID-19 wave impact UK schemes?
- 17/09: Trust in UK government dwindling due to COVID-19
- 26/08: Another step in adjusting to COVID-19 uncertainty?
- 19/08: COVID-19 outbreak to last at least until February 2021
- 12/08: Trustee sentiment around COVID-19 pandemic deteriorates
- 05/08: Relaxed attitudes towards COVID-19 threaten economic recovery
- 29/07: Does COVID-19 mean the ‘end of the world as we know it’?
- 22/07: COVID-19 could weaken covenants and raise taxes and inflation
- 15/07: COVID expectations set, except for economic recovery
- 08/07: COVID concerns rise as economic outlook improves - why?
- 01/07: Lockdown easing raises COVID concerns
- 24/06: The UK government’s COVID-19 guidance attracts criticism
- 17/06: COVID concerns shift to life after lockdown
- 10/06: Will lockdown easing cause COVID concerns to rise?
- 03/06: COVID concerns at an all-time low – is the worst over?
- 27/05: Personal COVID concern subsides – but this may be a problem
- 20/05: UK pension trustees worry there may be no ‘going back’ after COVID
- 13/05: UK pension schemes don’t trust the lockdown exit strategy
- 06/05: Concerns over duration of COVID lockdown and macro effects intensify
- 29/04: Professional COVID concern spikes by 18% as trustees brace for a longer lockdown
- 22/04: Macro effects of COVID to last until 2022, with personal concerns up by 10%
- 15/04: COVID concerns fluctuate – there is no path to normalisation in sight
- 08/04: The magnitude of COVID’s economic impact remains unclear
- 01/04: Have UK pensions schemes settled into the ‘new normal’ of COVID-19?
- 25/03: Rising levels of concern about COVID and a changing economy
- 23/03: What do pension funds think about the economic impact of COVID-19?
- 19/03: COVID-19: Government response divides pensions community
- 18/03: 96% of pension funds and trustees preparing for a long-term COVID-19 fallout
- 18/03: mallowstreet Flash Insights Report: COVID-19 – what’s on trustees’ minds
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:
A methodology change took place on 06/10/2020, affecting data from 20/10/2020 onwards.
Prior to 06/10/2020:
- Lowest possible value = 1 month
- Highest possible value = 6 months
Following 20/10/2020:
- Lowest possible value = 1 month
- Highest possible value = 12 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 = all respondents think rates will fall
- 0 = all respondents think rates will stay the same
- +100 = all respondents think rates will rise
Sector sentiment index:
- -100 = all respondents think the sector will be a ‘loser’ in the pandemic
- 0 = all respondents see a neutral outlook for the sector
- +100 = all 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.