Equity market turmoil: what a pension fund holder can do

GLOBAL EQUITY market turmoil means that Irish pension funds have wiped out all of their gains from the Celtic Tiger years, and have failed to beat the annual inflation rate for the past 10 years. But is there anything pension fund holders can do about it?

Pensions ombudsman Paul Kenny investigates and decides on complaints and disputes involving pension schemes. However, he says that, on the issue of pension fund performance, there is nothing that can be done.

While he acknowledges that, from a prudential point of view, for Irish pension funds to be weighted so heavily in a single market was not appropriate - and that "investment managers have questions to answer" - he says it is very much an issue for the trustees of a pension scheme, rather than his office, to decide how and where a fund should invest its assets.

Nevertheless, he points to the Pensions Act. This requires trustees to be responsible for "proper investment of assets of the scheme, and he says that there is potential to argue that, given the concentration of the Irish market, it wasn't proper to invest so much in Irish equities.

Another issue he identifies is the lack of experience on the part of pension trustees to adequately direct where and how the fund should be invested, with many trustees having little investment expertise.

While trustees are required by law to appoint a professional investment expert, in many cases this simply means the investment manager who invests the money going into the fund, with many trustees loathe to incur the expense of appointing their own independent investment consultant.

To date, the ombudsman has not had any complaints over performance, with most of the problems raised related to charges.

In light of current pension fund performance, Kenny says that there is an argument to be made for performance-related fees. However, he cautions that sometimes it is worth paying more for a better product.

And while pension fund holders may be feeling very sorry for themselves given the dramatic decline in the value of their funds, Kenny says that the worst affected by the current crisis are probably those with self-managed pensions, who may have invested as much as 100 per cent of their pension fund in property - in some cases, in just one building.

Consumers with pensions-related complaints can bring their case to the financial services ombudsman, the financial regulator, and the Pensions Board, in addition to the pensions ombudsman.

FIONA REDDAN