TPR outlines four 'shapes of recovery' for Covid-battered pensions industry
Four possible models of economic recovery are being discussed as part of a 15-year corporate strategy plan, The Pensions Regulator (TPR) has said.
Speaking at a Society of Pension Professionals (SPP) online conference this morning (22 September), TPR executive director of strategy and risk Jo Hill said there were four likely routes for economic recovery post-coronavirus.
She confirmed the regulator had been in close discussions with the Bank of England and other regulators on a Covid-19 recovery action plan for pensions to build on TPR's existing 15-year corporate strategy plan and analysed four recovery scenarios: L-shaped, V-shaped, Bathtub-shaped and W-shaped.
"The world is changing rapidly and I'll say it based on what we've been discussing over the course of the last few weeks, but the world continues to change around us," she said.
"At TPR, we have been working on developing a corporate strategy over the course of the last year or so. We were due to launch this two weeks after lockdown and so our plans were put on pause. What we've been doing over the course of the summer however is revisiting that strategy, and revisiting the underpinning and analysis that we use to develop that strategy, and testing it for these ever-changing times."
Hill said the regulator had put together a picture of what the economic recovery could look like, but this was dependent on how the virus was contained and controlled in the UK, and the possibility of a vaccine.
She said: "We have low containment and control - lots of economic scarring and contagion - and what we see here is very little recovery as predicted by some models.
"Then we have the most ambitious risk recovery response - high containment and control high economic resilience and reduction which gives us the V-shaped recovery that was talked about for some time."
Hill said a further route was a "variation on a Bathtub-shaped recovery" as well as a W-shaped recovery. "That option really looks at bounces in economic recovery caused by continuing lockdown," she added.
"What we hear is some descriptions really that we can associate with those shapes, so in one option we'd be looking at a successful vaccine towards the end of the year resulting in virus containment, leading to a reopening of life as we knew it from the beginning of 2021, and minimal economic scarring [and] minimal pressures on the economy, and that's the V-shaped recovery," she said.
"With the bathtub shape, we're looking more at containament through social distancing, and we're looking at the initial demand shock, and lastly - largely reversible - some economic scarring."
The fourth route of the W-shaped recovery would be the regulator's option if multiple national or regional lockdowns were announced by the government in the long-term.
Pension Protection Fund chief risk officer Stephen Wilcox - also speaking at the SPP's conference - said the focus of its discussions with the TPR had been on ensuring the impact of the four models on scheme sponsors.
"It's about trying to understand and manage any covenant risk that the schemes will have to manage," he said. "There is always risk, but just looked at from different directions."
Hill added: "The best of each of these recovery scenarios is to think through the impacts and that is how we have centred our analysis over summer.
"The initial bounce back when restrictions were lifted was followed by slower and more stilted progress and we have already seen that begin to happen. If employment and other activities recover over the course of the next two years, but don't quite make it back to where they were before, and inflation is moderated and business investment is muted, what it tells us is the key themes we will need to look at in each recovery model."
She concluded: "TPR has learnt it really needs to be adaptive and responsive, so whatever and however we set ourselves up needs to be that too.
"What we have predicted for now is more of a plough-shaped recovery but who knows where we will be in a few weeks or even a few days depending on what announcements are made."
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