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Challenges facing Irish pension schemes

Written by Robert McHugh, on 26th Mar 2015. Posted in Ireland

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Representatives from over 70 of Ireland biggest pension schemes and companies gathered at the IAPF Annual Investment Conference which took place this morning in the Printworks, Dublin Castle.

The IAPF represents pension savers and works to ensure people can have pensions that are secure, fair and simple. The IAPF Investment Conference was sponsored by Pioneer Investments and OPDU.

The IAPF called for a radical rethink of the regulatory approach to Pensions as the impact of Quantitative Easing (QE) is expected to last years. 

The conference looked at the impact of Quantitive Easing and lower bond rates on DC and Defined Benefit schemes, on both assets and liabilities. Attendees learned of the regulatory implications and challenges facing trustees to mitigate the Quantitative Easing challenge. 

According to Jerry Moriarty. CEO of the IAPF, "Defined Benefit schemes have made significant strides in recent years, with 60% now meeting the required level of funding standard. 

Unfortunately, the impact of QE is effectively reversing those gains. Low yields on bonds drive up the value of liabilities wiping out the significant investment gains that have occurred since 2009. 

In addition trustees are under regulatory pressure to de-risk by buying more bonds at a time of negative yields and with the ECB active in the market further pushing down yields. The regulator is also introducing Risk Reserves in 2016 which penalises schemes that don't have bonds. These requirements need to be reviewed to take account of the artificial and unprecedented conditions in bond markets today."

David Greene of Pioneer Investments, one of the keynote speakers at the event said, "Pension schemes are between a rock and a hard place.

When weighing up the risk & return comparison between equities and bonds, there's no clear way forward. While there may be a temptation to switch some assets to equities in order to reduce the impact of QE, we're now in the longest post-war US equity bull market in history, which wouldn't encourage pension scheme trustees to switch to equities to avoid the impact of QE.

There's a balancing concern that this could come to an abrupt end with a significant correction. I don't envy the decisions that pension trustees are faced with."

For more visit: www.businessworld.ie

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