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Law360, London (March 3, 2020, 2:41 PM GMT) -- The stock market slump on COVID-19 fears added £100 billion ($126 billion) in deficits to U.K. pension plans last week, a report said on Tuesday, adding to regulatory pressure to shore up shortfalls.
Pensions manager Hymans Robertson said in a report that "final salary" defined-benefit pension plans now had deficits of around £500 billion after stock markets reported the worst week of trading since the 2008 financial crisis.
Pension plans are particularly susceptible to volatility in markets, which were spooked last week by the impact of the coronavirus on manufacturing and supply chains.
"The ripple effect from this crisis will be felt across the world across a number of industries and pensions will not be immune from that," said Calum Cooper, partner at Hymans Robertson.
Lawmakers have become increasingly concerned over the liabilities of pension funds after the collapse of high street retailer BHS Ltd. in 2017 left behind a £517 million pension deficit. It is estimated that six out of 10 of the U.K.'s 5,400 defined-benefit pension plans are in deficit.
Hymans Robertson said that deficit could grow to £900 billion if the coronavirus triggered a "supply-side macroeconomic shock" to markets.
That would be compounded by a squeeze on employers, who might contribute less to their workplace pensions than they are required to do.
"All this at a time when the regulatory funding regime is on the cusp of getting a lot stricter," said Cooper.
The Pensions Regulator on Tuesday announced a tightening of the funding arrangements for defined-benefit plans, which would see the biggest companies required to clear pension deficits within the first six years.
The pensions manager said that, based on a mortality rate of 2.3%, if one-third of the U.K. population contracted the coronavirus, it would lead to a liability drop of 1% for defined-benefit plans.
The company also likened the outbreak to the 1918 Spanish flu, which killed 50 million people and wiped 5% from global economic output. If COVID-19 had a similar impact today, it would reduce global equity market capitalization by $3.5 trillion, Hymans Robertson said.
--Editing by Tom Mudd.
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