The Irish Association of Pension Funds (IAPF) has expressed concerns that, with falling bond-yields, pension funds and defined contribution members may be tempted to take on higher risk to achieve their intended investment outcomes.

This is supported by the OECD’s Annual Report on Pensions which was published earlier this week, in which the OECD warned that the current, low-growth, low interest rate environment, is making it difficult to earn the returns necessary to reach adequate pension levels.

The OECD stated that this can lead to a search for higher yields and a pursuit of riskier investment strategies which could ultimately undermine solvency and jeopardise current and future retirement income security.

Jerry Moriarty, CEO of the IAPF, speaking at the annual IAPF governance conference at Dublin Castle yesterday said: “Research has shown that good progress has been made by pension scheme trustees in understanding and analysing investment risk.

"However, we would caution that with high asset valuations, trustees need to be conscious of the impact of potential losses - should markets suffer significant falls. This is particularly relevant as pension liabilities remain high due to the impact of low interest rates.

"In such an environment, good governance ought to ensure that risks are managed proactively and performance delivered within robust internal controls developed by good governance”.

Patrick Hogarty from Alder Capital unveiled research at the Conference which shows that risks can be managed in a way that can generate the same return as the underlying basket of shares every three to five years, but with 1/3rd of the maximum peak-to-trough falls in value. 

Mr Hogarty explained: “When risk is managed proactively, in a tight range and around a target level, trustees are no longer bounced into making hasty investment decisions in falling equity markets."

Source: www.businessworld.ie