Pension fund body urges better understanding of risk

THE IRISH Association of Pension Funds (IAPF) has launched new investment guidelines designed to promote understanding of risk, which it said were crucial in times of market turbulence.

"Pensions are a long-term investment which should be managed to counter the inevitable cyclical nature of stock markets. Higher standards of care are needed to ensure best practice and the new guidelines work towards this," said Joseph O'Dea of Watson Wyatt and the IAPF Investment Committee.

Addressing the IAPF's annual investment conference yesterday, Mr O'Dea said the decline in markets over the last year was a stark reminder of the need for trustees of pension schemes to consider the investment risks and the needs of members including growth, capital protection and income protection.

"In particular, attention should be paid to the requirements of members within 10 years of normal retirement in terms of income protection and lower exposure to equities," he said.

Delegates were also told that the Irish economy may show zero or even negative growth in 2008.

Dr Alan Ahearne of the National University of Ireland, Galway, also called into question optimistic growth forecasts.

"There is little evidence to justify forecasts of any growth in the Irish economy this year," he said.

The housing slump would wipe 4 per cent off GDP while the National Development Plan would only compensate for 0.5 per cent of this, according to Dr Ahearne.

Official indices had underestimated the fall in Irish house prices, he said. "The market value of Irish homes probably fell by 10-15 per cent over the last year and are likely to show similar falls in 2008." There was little hope for Irish mortgage holders in terms of interest rate cuts from the ECB for the foreseeable future, he added.

Referring to the impact of currencies on Irish exporters, he said it was in the US Federal Reserver's interests to see a continuing fall in the dollar to reduce the enormous US trade deficit.

"Irish exporters should be looking to Asian economies as the current low value of their currencies is unsustainable."

Dr Ahearne told IAPF delegates that US corporations located in Ireland who priced in dollar rather than euro would see increasing pressures. "These firms have been extremely well managed and their challenge is less a competitive factor than a currency one."