Survey: Pension funds grew 14%

DESPITE growth of almost 14% to €72 billion last year, Irish pension funds are still 16% below their 2007 peak of close to €87bn.

A survey from the Irish Association of Pension Funds also found that for the first time since 2006, the proportion of assets in defined benefit (DB) schemes increased to 67% from 62%.

Director of policy at the IAPF Jerry Moriarty said, however, this did not reflect a resurgence in DB schemes but more likely reflected a fall in defined contribution payments, combined with additional cash injections to fund DB deficits.

The IAPF investment survey also found that 64.3% of DB assets are in equities compared to 58.7% in DC. DC members have 12.5% of assets in cash compared with 4.3% for DB schemes.

“This suggests that DC members, stung by losses in pension fund values, remain reluctant to invest in equities,” said Mr Moriarty.

“The downside of this is that if equity markets continue to recover in 2010 as they did last year, they will lose the benefit of this upturn.” He said the overall picture confirmed the precarious state of pension fund investment.

“Reducing tax relief on ordinary members’ pension contributions will only further reduce the incentive for members to invest adequately in their pension,” he said.

Director with IFG corporate pensions John McGovern said there is no doubt the events of the past 18 months have significantly dented investor confidence.

“We have witnessed the actions of pension holders who are under significant financial pressure, a minority of whom are reacting by moving their pension funds away from equities and in some cases upon redundancy requesting to cash in their pension at low values.

“We would strongly urge pension holders to consider the longer term implications of these decisions. While we can understand the predicament that many people find themselves in, they need to be mindful that they are undermining their longer term financial security.”

Mr McGovern said those who move radically away from equities will miss the recovery stage of the equities cycle and will potentially miss out financially.

“This is paramount for younger investors, where equities need to be considered and treated as a longer term investment asset within their pension portfolio. Holding a significant proportion of your pension in cash or bonds is more suitable for those closer to retirement.”

Of the near €49bn of assets under management on behalf of DB schemes, 54% were actively managed, with the remainder passively managed.

At the end of last year equities accounted for 58.7% of the assets being managed on behalf of DC schemes. Another 22.5% of DC assets were allocated to bonds, while property made up 4.9%.