Minister for Finance Brian Lenihan and Taoiseach Brian Cowen, at the launch of the National Pensions Framework policy document, on March 03, 2010.

Ireland’s pension industry must address its over-emphasis on equities or else face another catastrophic wipe-out of pension values in the future according to Jim Power, Chief Economist of Friends First. Power was speaking at a William Fry Pensions Breakfast Briefing, “Rising from the Ashes – Investment Outlook & Strategy for Pension Schemes” which was attended by 120 people this morning.

Power outlined that in February of 2010, Irish managed fund assets had a weighing of 73% in equities compared to 18% in fixed interest. This overexposes Irish pensions to turbulence in the markets and a potential replication of the current recession or the dotcom bubble which would have an adverse effect on Irish pensions and subsequently the State. He also called for a complete review of the fee structures of pension fund managers in light of the economic recession.

“We are playing Russian roulette with the Nation’s pensions,” said Power. “Unlike a lot of other European countries we have excessive exposure to equity market volatility. A similar downturn to what happened in the last 18 months would decimate existing Irish pensions and have severe and long lasting consequences for the Irish state. This balance must be addressed immediately in order to prevent the creation of a new section in Irish society – “The Retiring Poor.”

“There is an onus on pension scheme trustees to regularly review their investment portfolio. In addition to the investment balance, trustees should also review the fee structure of pension fund managers. In the majority of cases these fees have not been adjusted to reflect the recession and in many instances the fees are eroding all potential returns. The pensions industry needs to address it customers concerns and be more transparent, more accountable and more responsive to customer requirements,” he added.

Michael Wolfe, Partner and Head of Pensions at William Fry, suggested that “if possible, trustees should insist on the introduction of performance fees where pension fund managers’ fees are directly linked to the investment return.”

“The changing pension landscape means that it is critical for both employers and trustees to ensure the proper governance of pension schemes,” according to Peggy Hughes, a Senior Associate in William Fry’s Pensions Group. “Trustees and employers are finding that pension legislation is making greater demands of them and that falling behind with scheme maintenance is no longer acceptable, particularly with the advent of on-the-spot fines by the Pensions Board.”