This morning’s financial 'flash crash' is “good news” for pension schemes investing in the stock market, Close Brothers Asset Management has reported.

The sudden fall, named the “flash crash” occurred early today, cutting almost six per cent off the value of the pound. At one stage British currency fell dramatically to below $1.14 from $1.26 which was triggered or blamed on hard comments by French president Francois Hollande on the consequences of Brexit.

Looking at the implications of the crash on pensions, it has been suggested that the crash brought with it a rise in equities. This is, therefore, a positive result for pension savers who have invested their pot in the stock market.

Close Brothers Asset Management head of pensions David Newman told Pensions Age: “Friday’s Brexit ‘flash crash’ sent the pound plummeting, generating a significant upswing in equities – good news for those investing in the stock market through their pensions.

"Since 2002, market movements have benefited younger pension savers, boosting the average pot by 168 per cent. This is because 25-34 year olds typically take on more risk and can afford to be less concerned with short-term volatility because investments are focused on long-term growth.

“It is crucial that those starting their savings journey understand what the right level of risk is for them early on, so that markets can do much of the heavy lifting over the next 40 years and deliver them the pension they need for the lifestyle they want to have in retirement.”

Others have noted that the flash crash has brought a mixed response across the sector. Charles Stanley Direct, pensions & investments analyst Rob Morgan told Pensions Age: “From an investment perspective there are winners and losers. The UK stock market rightly sees the balance as positive and has risen as the pound has dropped.

“For investors the overall effect continues to be positive, although some areas, such as those concentrated on the domestic economy, will likely see headwinds for some time. UK investors’ overseas assets meanwhile are seeing more universal benefit from weak sterling – showing the benefits of a diverse portfolio.

“However, investors must also be wary. If the weakness in the Pound gathers pace, then at some point rising import costs will feed through to inflation. At that point the Bank of England would have to review its low interest rate policy. This would be negative for both stocks and bonds. A weakening in gilts has already provided some relief for defined benefit pension scheme deficits, and in this scenario they, along with savers, may be among the small number of beneficiaries.”

Lane Clark & Peacock partner Richard Murphy said to Pensions Age: “For pension schemes, any direct impact of the fall in sterling is likely to be small. The real interest is what is happening to gilt yields, which have been rising sharply as sterling has tumbled. A major gilt sell off resulting in higher long-term yields would be a welcome relief for schemes who have seen deficits balloon over the summer.”

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