Defined contribution (DC) scheme trustees and members must avoid “knee-jerk reactions” to the coronavirus pandemic, according to XPS Pensions.

Guidance released by the company recommended that trustees evaluate default investment strategies and business continuity planning in trustee meetings via telephone or video.

It noted that continued oversight and governance remained essential to schemes, calling for trustees to work to check key person risk, ensure employer teams can continue to submit contributions and make sure ‘business as usual’ can be maintained as much as possible.

Trustees should also consider reaching out to members to help them understand how their retirement planning might have been affected, as well as using member communications to quell panic that could lead to poor decision-making.

XPS senior consultant, Chris Barnes, said: “We recommend that trustees of DC schemes continue to provide clear and helpful support to their members during this volatile time. Good governance, an appropriate investment strategy and maintaining ongoing operations remain key.”

Meanwhile, members might wish to alter their investment strategies as key DC asset classes have been hit by the crisis.

The company said “members who are typically further away from retirement and have greater exposure to equities will be one of the hardest hit groups”, adding that they would now be “reliant on their position as long-term investors and grateful for the potential to recoup losses over the coming years”.

The relative resilience of bond markets was seen as good news for members approaching their target retirement ages due to a higher likelihood of ‘low-risk’ investment strategy, though those purchasing an annuity might receive lower levels of income in exchange for their pension savings.

Members invested in property funds might now be unable to withdraw or further invest following the imposition of regulatory limitations, which could prove disruptive for those seeking to transfer their savings or retire.

Finally, those invested in cash face very low returns after the Bank of England cut interest rates to a record low 0.1 per cent, the effects of which will only be exacerbated by having to fork out investment manager fees.

XPS senior investment consultant, Alan Greenlees, commented that equity markets normally take “between two and three years to reach the bottom of the market” before recovering over another three years following significant shocks, concluding that members invested in equities “may wish to consider such timescales”.

XPS investment partner, Craig Malenga, said: “It’s times like these where well thought out actions can create the greatest benefits, but ill thought out actions and inaction can cause the most damage! Our future selves will look back and be grateful for the good decisions we make today.”

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