Thursday 26 April 2018

Dominance of shares again in spotlight as markets tank

pension investment

Charlie Weston, Personal Finance Editor

THE plunge in global stock markets should act as a warning to pension savers about the risks of putting too much money into stocks and shares, the pensions regulator said.

Pensions Board boss Brendan Kennedy yesterday cautioned those with pensions to be conscious of the risks of losses in their pension investments.

But other pensions experts disputed the warnings from Mr Kennedy on shares.

Mr Kennedy, head of the state body charged with regulating and promoting pensions investments, said: "The falls in stock markets in recent days and weeks are a reminder of the importance of taking investment risk into account when investing pension savings.

"The Pensions Board is well aware that stock market losses are a worry for all pensions savers," Mr Kennedy told the Irish Independent.

The Pensions Board boss has repeatedly warned that too much of the money that is put into pensions in this country is invested in equities.

He has criticised the fact that eight out of every 10 euro put into pensions goes into equities and property.

Mr Kennedy has blamed the high concentration of equities in most pension funds for the fact that that three-quarters of company-defined benefit schemes are in deficit.

Large-scale investment in shares was also the main reason that most defined-contribution schemes have recorded poor performances.

New figures out this week show that most pension funds lost ground in July, and are now down almost 3pc for the first seven months of the year. The average fund has lost 1pc of its value a year over the past 10 years. This is behind the average inflation rate of 2pc a year over the same period, according to Fiona Daly of Rubicon Investment Consulting.

Equities

But pensions experts said it would be a mistake for people saving into a pension to turn their backs on equities.

Managing director of the Independent Trustee Company Aidan McLoughlin said the Pensions Board was mistaken.

Volatility was a feature of stock markets, but pension funds need to invest in shares to achieve long-term growth.

He said that anyone close to retirement should ensure that their funds were gradually taken out of shares, but for those with 20 years or more to go before they retired, investment in shares made sense.

Pensions funds need to be well diversified, but with such a young population Irish pension funds could afford to take a long-term view, he argued.

"The Pensions Board is continually going on about our high exposure to equities. But how else are you to achieve long-term growth?" Mr McLoughlin asked.

And head of IFG Corporate Pensions Fionan O'Sullivan said stock market panic was the last thing pension funds needed at the moment as many of them were being forced to sell shares to pay the Government levy on private funds.

The levy, which is supposed to pay for a jobs initiative, fell due in the last few days.

Mr O'Sullivan said that the falls in equity prices and the need to pay the levy meant that some people who are retiring at the moment would see some of their retirement benefits cut.

Irish Independent

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