Irish pension savings reach record high

Irish pension funds rose to a record high of €107.8 billion in 2014, as a combination of increased contributions and good market returns saw pension savings grow by 18 per cent. However, in launching its annual survey Jerry Moriarty, CEO of the IAPF, warned that while pension funds have risen, the liabilities facing pension savers are rising at a faster pace, which means that "people will either have to live on less, retire later or increase their savings".

Survey

According to the annual investment survey from the Irish Association of Pension Funds (IAPF), pension savings grew by €16.3bn, or 18 per cent, in 2014 to €107.8bn.This means that savings are now up by 70 per cent since plummeting to €63.6 bn at end 2008.

Defined benefit (DB) or so-called “final salary” schemes, worth some €67.4bn, reported a swing to bonds during the year, with a reduction in DB schemes allocation to equities, down from 47.5 per cent in 2013 to 42.5 per cent in 2014. This is in line with a trend which started in 2007, when equities accounted for 66.3 per cent of DB portfolios.

Despite ongoing bond market turmoil, DB schemes increased their investment in bonds during the year, up from 36.7 per cent to 41.2 per cent, and up from just 18.5 per cent as of end 2007. Investment in alternatives rose mounted to 8%, an increase of 1% from 2013, and of which 6.2% were invested in absolute return funds and hedge funds.

According to Mr Moriarty, the allocation switch is a combination of a general move away from riskier assets and regulatory pressure. However, he warned that “with bonds providing very low or negligible returns, schemes are under pressure to find assets that provide returns but maintain risk at acceptable levels ”.

DC schemes face liability challenges

Defined contribution (DC) schemes, worth some €40.4bn, also reduced their equity holdings in 2014, down by 1 per cent to 52.2 per cent, as they upped their allocation to bonds by 2 per cent to 23.1 per cent, and to alternatives by 1 per cent to 5.9 per cent. DC funds cash holdings fell from 17 per cent to 14.1 per cent.

But, while pension funds have recovered from the substantial losses of 2008, Mr Moriarty sounded a warning note when it comes to the liability of these funds. These have recently been rising at a much faster pace due to the historically low interest rates, particularly on Government bonds, Mr Moriarty said. This means that the pension or “liability” a DC member can expect to get at retirement has decreased substantially in value over the past few years as bonds yields have fallen.

This means that “people will either have to live on less, retire later or increase their savings” Mr Moriarty said.