Pension risk not fully understood by contributors, says ombudsman
PEOPLE paying into pensions fail to understand the risks that their fund will lose money, the Pensions Ombudsman Paul Kenny said yesterday.
Consumers also fail to understand the complexity of pensions.
The ombudsman's office is spending a huge amount of time sending letters to people explaining and clarifying issues around pensions, Mr Kenny said at the launch of his office's annual report.
Massive losses have been incurred by those who have defined contribution schemes due to the banking losses and the economic collapse.
But property falls have been behind huge losses for those with self-directed or small self-administered schemes, Mr Kenny said.
People with these self-directed schemes put foreign and Irish property into their funds, but are now regretting it, he said.
"It is true that many people affected in this way went into those investments with their eyes open, but I have to say that elements of the pensions industry have not covered themselves in glory when it came to setting up the schemes," Mr Kenny said.
And what the Pensions Ombudsman described as "ordinary, middle-income pension scheme members" have also suffered huge losses from their pension investments.
They put their money into what they were told at the time were low or medium-risk schemes, but some of these funds are now being labelled as medium to high-risk.
The ombudsman revealed that he is now getting a large number of complaints from people who are members of defined benefit schemes.
These final salary schemes were traditionally regarded as the "Rolls-Royce" of pensions as they promised a pension based on a set amount of the member's final salary. However, it has been revealed that eight out of 10 defined benefit schemes are now in deficit.
"Defined benefit schemes in the private sector are having significant difficulties -- more and more complaints that are now arriving seem to centre on matters arising from insolvency of those schemes, or issues that have their origins in decisions to wind them up."
Mr Kenny said the number of new cases in the first half of 2012 was more than double the number of cases received in the same period in 2011.
It has risen from 584 new cases in the first half of 2011 to 1,171 new cases in the first half of this year. Complaint cases have also increased in complexity, the ombudsman said.
The Pensions Ombudsman expressed concern about the clarity of communications relating to pensions. He highlighted the need for clear and consistent communication between employers, trustees and scheme members.