Further uncertainty for pension funds

ONCE uncertainty over the war was out of the way, markets were due to pick up and the global economic outlook to improve.

That was the expert market consensus. Much of the recent lethargy in markets could be explained by the war factor. Once a decision was taken one way or the other, then the chances were markets would improve was the prevailing view. So far little has happened. Perhaps the markets need thousands of Iraqis dead before they are happy the war is resolved or perhaps they want Saddam dead.

Perhaps however, just perhaps, the markets are not really being dictated by the war. What then?

Only time can answer that conundrum, but so far we have hardly seen a blip out of the markets despite all the assurances that, once the bombs started to drop the markets would respond favourably.

That was probably too optimistic a view of the state of the markets, however, and recent warnings suggest that sensible people will keep their money in bonds or cash for the time being or else be very careful about their share selections. In fact, it means further uncertainty for pension funds, about which the economy heard much during the week. Mercer, biggest players in the Irish pensions consultancy sector, announced a major initiative with a number of former employees who have become overseers of pension funds in Britain about 100bn worth to be exact.

It looks an interesting move, aimed at the very badly-served small to medium defined benefit pension funds in Ireland.

When the conflict of interest bit is resolved, trustees and companies may well see this development as something that will give their funds the kind of services they need to ensure they meet their long-term liabilities. How much difference it will make to pension fund performance when the markets are down is a good question, but Tom Murphy of Mercer said at the launch of the Mercer 360 plan that the fund managers they had chosen beat the performance index in each of the years since they were established in 1999.

Attica Asset Management is the company in question and the link-up will give pension funds access to leading international investment managers hitherto unavailable to them.

Mercer's announcement coincided with an announcement by Hewitt Bacon & Woodrow's to inject a bit more competition into the pension consultancy field. One could argue the timing of both announcements with the markets still on their knees was a bit unfortunate, but the reality is that Irish pension funds have been badly-served in a market that has been controlled by the big financial institutions, and a bit more competition has to be welcomed even if Mercer have to put their hands up and declare a conflict of interest. It will be a good move, too, if it means pension trustees get a better service than they have been subjected to in the past then good luck to Mercer and to Hewitt Bacon & Woodrow, who may have a bigger fight on their hands than they anticipated when the recently decided to up their Irish presence.

This new zeal for the pensions sector is coming at a time when concern is growing about pensions in the Irish market.

PRSAs have just been introduced and many say they will see the end of defined benefit plans, because they cost employers nothing if they introduce them as their basic plan.

Non-plan might be closer to the truth!

Rachael Ingle of Hewitt Bacon & Woodrow believes we need a much bigger debate in this country than we have had to date on future of pension provisioning.