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Avoid making rash decisions, pension fund members told

 

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Don’t panic over your pension: Peter Gray of Mercer

Don’t panic over your pension: Peter Gray of Mercer

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PEOPLE with defined contribution pension plans are being advised not to panic as their fund has lost value this year.

It comes as the company pension funds of some of the largest companies in the State saw their deficits unchanged in the first three months of the year.

Peter Gray, corporate consulting leader with Mercer, said that members of defined contribution schemes will have likely seen the value of their retirement funds fall since the beginning of the year.

With a defined contribution scheme, employees and employers pay into a fund, with the final pension amount based on the amount put in and the fund performance.

Mr Gray said Mercer has seen an increased level of queries from members and interest in switching investment strategies.

"We would caution against any knee-jerk reactions, especially when the market is so volatile, as it may ultimately only serve to lock in losses."

He said those furthest from retirement have time for markets to recover and those closer to retirement will have benefited from de-risking if they have adopted a lifestyle-investment approach.

Members were strongly encouraged by Mr Gray to seek advice before making any decisions.

Recent figures from Rubicon Investment Consulting show that over the first four months of 2020, Irish pension managed funds have lost an average of 8.5pc.

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Don’t panic over your pension: Peter Gray of Mercer

Don’t panic over your pension: Peter Gray of Mercer

Don’t panic over your pension: Peter Gray of Mercer

 

In the past twelve months, those funds have delivered a 2.8pc loss on average.

The average managed fund return has been 2.4pc per annum over the past three years.

Mercer said the pension funds of the largest firms in the State saw their deficits unchanged in the first three months of the year.

This is despite the extreme volatility in financial markets caused by the Covid-19 pandemic.

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An analysis by Mercer shows that defined benefit pension deficits for Iseq-listed companies have remained unchanged at €1.2bn from year end to the end of March.

A defined benefit pension is one where a specific benefit will be paid to the member when they retire, with the amount based on the number of years an employee has worked and their final salary.

There was a sharp fall in stock markets in the first three months of the year.

But this was offset by a decline in scheme liabilities fuelled by soaring corporate bond yields, according to research by pensions advisers Mercer.

Pension liabilities are the difference between the total amount due to retired scheme members and the actual amount of money the pension scheme has to make those payments.

Liabilities are calculated with reference to the interest on bonds. The higher the rate, the lower the pension liabilities.

Mercer has advised pension fund trustees of DB schemes and sponsors to plan for the possible economic disruption of a second lockdown, or the possibility that the current lockdown will be extended.

The consultants also advised trustees to consider the investment opportunities of buying assets at reduced prices due to the falls in stock markets.


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