Falling share prices wipes €7.6bn off value of pension funds

A MASSIVE €7.6 billion has been wiped-off the value of pension funds this year, according to the Irish Association of Pension Funds (IAPF), who say people may have to work until they are 70 to secure good pensions.

The IAPF estimated just 43bn remains of the 50.6bn held in Irish pension funds at the beginning of the year as a direct result of falling share prices.

IAPF chairman John Feely said: "This is the result of the most sustained bear market in the last 50 years."

The annual IAPF Asset Allocation Survey shows that at the end of December 2001, 64.6% of pension fund assets were held in equities.

Irish pension funds exposure to the Irish equity market fell to 15.7% in 2001 compared to 18.7% at the end of 2000.

However, investment in Irish equities still makes up more than half 51% of the total equity investment by Irish pension funds in the euro zone.

As Irish pension funds moved out of Irish equities, holdings in US equities rose from 13.9% in 2000 to 16.3% in 2001. Euro zone holdings increased slightly from 14.5% to 15%. Investment in Japanese equities continued to slip to just 2.8% at the end of 2001.

"Historically, investment in equities has provided the best return over the long term. The decline in equity markets over the last three years has come off the back of exceptionally strong equity returns in the previous 15 years.

"Investment in equities has been a major factor contributing to the growth in Irish pension assets from 12bn just 10 years ago to their current level," Mr Feely said.

Mr FeelyHe also warned that returns from equities in future may not be as high as those achieved in the past.

"Because of increased life expectancy combined with the likelihood of lower returns and interest rates, we need to look at a more flexible approach to retirement.

"It may be desirable from an economic and social perspective to encourage people to continue to work, full-time or part-time, into their 70s if they wish rather than setting an arbitrary retirement age of 65. The recent trend towards early retirement is not likely to be affordable in the future," Mr Feely said.

He also said that those in occupational pension schemes should seek advice as to whether they need to top up their pension through AVCs (Additional Voluntary Contributions).

"The reality of changes in pensions, economics and demographics is that individuals are going to have to take more personal responsibility to make sure that they have adequate provision for retirement rather than relying on the State or their employer " he said.