Ongoing market volatility could highlight the need to think again about how pension schemes invest, according to former Institute for Fiscal Studies executive committee chair, Dame Frances Cairncross.

Hosting a session at the PLSA Annual Conference 2022, Cairncross noted that we have seen interest rates and gilt yields return to the “normal territory” observed in the second half of the last century.

“I think once everything settles down, pension funds may find this reassuring rather than scary,” she stated.

“It’s scary at the moment but once we are back to normality that we had in the second half of the last century, I think it will be easier for people to work out where things are going.”

Cairncross believes that a long period of zero interest rates would not be seen again, but that it was likely we are facing a period where markets are very volatile and where equities generally give better returns than fixed interest in the long run.

“That, of course, also has messages for the way in which pension funds should think about the future,” she continued.

“There are still going to be some problems ahead. I think that the pound will recover. I think that out of this may also come a need to think again how pension funds invest, what the controls on their investment policies are because we live in a world where basically, on the whole, equities do better than fixed interest.

“I think there may eventually be some pressure to look back on how pension funds got through this crisis and whether there are long-term regulatory lessons to draw from it.”

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