Cantillon: Putting a figure on the pensions debate

Former Irish Pensions Trust executive Alan Broxson: argued that while pension fund assets had continued growing, “the liabilities have been growing at an even faster rate”.

Former Irish Pensions Trust executive Alan Broxson: argued that while pension fund assets had continued growing, “the liabilities have been growing at an even faster rate”.


Pensions are a touchy subject – not least because the recent history of the sector has been one of declining benefits, higher costs and poor charge management. It is sensitive also because its recent travails are not merely academic, they have hit the retirement income of a generation of workers who were expecting one level of income only to have to settle for considerably less.

Strange then to see a pensions luminary like Alan Broxson wading into the debate in such a carefree and careless manner.

In this newspaper yesterday, he held that investment returns were not a factor in the current pensions crisis. Instead, he blamed problems on the liability side – we’re living longer and low interest rates means it costs more of our pension pot to fund each euro of retirement income.

The evidence? He pointed to surveys of performance of multi-asset managed funds. According to figures at the end of 2013, he said, these had made an average of 5.1 per cent per annum over the previous decade.

And he’s right, insofar as he goes. The data at the end of 2013 – a phenomenally good year for pension funds investments in which the funds he speaks of made 16.6 per cent, dragging up the average for previous years – do show an average annual return of 5.1-5.3 per cent per annum over the previous decade. After inflation, that’s about 3.5 per cent per annum. However, as Mr Broxson well knows, if you look at the same data at the end of 2012, they show a return of less than 5 per cent and, in 2011, the average return over the previous 10 years is just 1.9 per cent per annum. After inflation, that is actually a loss, on average, each year over that period.

So it is a question of which year you pick.

Alan Broxson is a former executive chairman of Irish Pensions Trust, chairman of the Irish Association of Pension Funds and member of the Irish Pensions Board, the industry regulator. He knows this full well.

In the past couple of years, the position especially of defined benefit pension funds has improved dramatically. Where a couple of years ago, as many as 80 per cent of these schemes were in the red, now the figure is closer to half.

Some of that is accounted for by distressed schemes closing. But the rest? It couldn’t be interest rates or longevity – the issues Broxson raises – as those have changed little in the period. What has changed – and improved dramatically – is investment performance, ironically indicating its relevance to the debate on pension fund performance.

There is, as Broxson argues, a need for detailed debate on the future of retirement and of pensions. Citing data selectively does no service to that end.

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