How Pension Funds Can Secure Retirement Benefits After COVID

In September 2019, I wrote an article, ‘Increased Pension Liabilities During the Coming Market Crash,’ which discussed current pension deficits and concluded that they were going to get much worse. At the time, no one anticipated the effect that COVID-19 would have on financial assets and gold.

Since then, stocks have declined by 24 percent and subsequently rebounded, while gold increased 27 percent and silver 37 percent (See Chart 1).

Chart 1

More importantly, while equity markets have recovered, the economy will not for years and the effect of lockdowns is still playing out. The Canadian Federation of Independent Business (CFIB) forecasts that Canada could experience 225,000 permanent business closures due to the pandemic1. So far, 5.3 million2 people have lost their jobs in the U.S., and 674,0003 in Canada. In 2021, bankruptcies will increase and more jobs will be lost. This will happen even if a vaccine becomes available. (See Chart 2)

Chart 2

Forced To Default
Commercial real estate – particularly hotels, retail, and office space – is another problem. As tenants are unable to pay rent and hotels have operated at less than 10 percent occupancy due to lockdowns, landlords will be forced to default on their mortgages.

Office buildings will see a major reduction in future demand as many employees continue working from home. Residential real estate will be a problem as many tenants have not paid rent for months and have been protected from eviction (the eviction moratorium expires in December 20204). That will cause a ripple effect and result in a much bigger problem for the banks than the subprime mortgage crisis of 2008.

Even with a COVID-19 vaccine developed, many sectors of the economy will not return to normal. The travel industry, airline industry, hospitality industry, and many others will take years to return to pre-COVID activity.

All this will affect tax revenues. Municipalities will be hard-hit since they depend on property taxes as their main source of revenue.

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Disclaimer: The information contained in this article/video provides a general overview of subjects covered, and the expressed personal views and opinions are not intended to be taken as advice ...

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