Trustees ‘face threat of pension scandal’

EXPERTS have warned greater vigilance on the pension front is required to avoid a pensions scandal.

Trustees were told to wake up to the realities of the market place by Evelyn Ryder of financial consultants Hewett & Becketts.

She warned as the Defined Contribution pension scheme market is growing, members and trustees need to ask basic questions about investment.

“It is estimated that about 75% of members opt for the default strategy, so it should be given a good deal of attention by all,” she said.

But the question facing trustees is whether the default mechanism most have gone for can deliver the goods on retirement.

Individual members reliant on such a strategy should be aware it may not deliver their pension plans.

Some members may be in a position to take on more risk in anticipation of the possible rewards, whereas other more risk adverse individuals may be horrified by the investment strategy being pursued unknown to themselves.

“We don’t want to be caught out a second time with all pension schemes following the ‘herd’ and assuming it’ll be all right in the end as happened with Defined Benefit schemes. Some DB schemes stayed for so long against a peer group benchmark, remained high in equities and now they are faced with big black holes to fill in their pension schemes.

“However, at least in the DB market the employer guaranteed the benefit.

With DC schemes, any similar black holes fall back to the individual."

Ms Ryder urged trustees to seriously review their default options, especially in light of the impending Pensions Amendment Act.

It says if appropriate choice has been made and a sensible default strategy is in line, then the members will have no retribution to the trustees if their investment lets them down on retirement.

Meanwhile a major review of pension funds carried out by Mercer found:

80% of respondents fail to meet minimum funding solvency requirements.

The key objectives of Defined Benefit trustees and plan sponsors continue to remain long term in nature.

Defined Contribution trustees and plan sponsors believe current contribution levels are inadequate.

The level of specialist management among Irish pension plans is still low.

87% of respondents believe investment managers “hug” benchmarks.

The findings are based on a comprehensive survey on the Irish market among key business leaders.

Tom Murphy, head of Mercer Investment Consulting Ireland said pensions were hit by assets under-performing and liabilities rising faster than expected.