TPR and PPF develop 'plough-shaped' economic recovery model

The Pensions Regulator (TPR) and the Pension Protection Fund (PPF) have developed a ‘plough-shaped’ model for economic recovery from the impact of the Covid-19 pandemic.

Speaking at the Society of Pension Professionals’ (SPP) Managing Pension Scheme Risk in the Current Climate talk, TPR executive director of strategy and risk, Jo Hill, explained how the model’s shape had been established through analysis of various other economists' models.

She pointed out that economists tend to be predicting four shapes of recovery, these being an ‘L-shape’, a ‘V-shape’, a ‘U-shape, and a ‘W-shape’ that would involve bounces back and forth caused by fresh lockdowns.

The research included an overview of what might need to be achieved to precipitate each recovery shape, with a ‘V-shape’ likely to require accomplishments such as virus containment or vaccine development before the end of the year.

The ‘U-shape’ was deemed more likely to occur after containment through distancing and largely reversible demand shock, while the ‘L-shaped’ model was attributed to a failure to contain the virus or deal with its economic consequences.

The ‘W-shape’ was likely to involve an initially swift recovery before a subsequent downturn caused by the reimposition of lockdown measures.

Hill said the ‘plough-shape’, which indicates a far slower recovery than the often touted ‘V-shape’ showed that sectors return to normal at “very different speeds”, pointing out that long-haul aviation would take a long time to recover.

Speaking about how the recent rise in cases and imposition of new safety measures might affect the recovery, Hill commented: “I think we have got indications that we are seeing the ‘plough-shape’ that we have predicted having a bit more of a ‘W-shape’, and naturally there are due to be government announcements over the course of today and the coming days.

“This might influence the shape of where we are, but we are still seeing this ‘plough-shape’ but who knows where we are going to be in a few days’ or a few weeks’ time.”

Explaining how the project got started, Hill said: “We have been working on developing a 15-year corporate strategy over the course of the last year or so. We were due to launch this two weeks after the Covid lockdown and so our plans were put on pause.

“What we’ve been doing over the course of the summer is revisiting that strategy and revisiting the underpinning analysis that we used to develop that strategy, and testing it for these ever-changing times.”

PPF chief risk officer, Stephen Wilcox, said teams from the two organisations had been working together “simply to share experience and understanding of what the economics might look like”, as well as “what the impact of those economics might be on sponsors, sectors and the universe as a whole”.

He added: “The claims risk that I am trying to understand and manage is equivalent to the covenant risk that any scheme has to manage, but I get the aggregate of it, as does Jo. It’s exactly the same risk but from a different direction.”

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