The Pensions Board launched its Annual Report for 2010 on 20 June 2011.  The Report states that despite the major stock market crash three years ago, there has been no noticeable reduction in the exposure to equities of Irish pension funds.  The Report criticises the continued inaction of pension trustees in this respect and states that the unavoidable conclusion is that, in ‘very many cases’ trustees of Irish pension schemes are exposing members to significant risks of further investment losses through continuing reliance on the volatile equity market. 

The Report’s warnings are particularly relevant in light of the current global economic situation.  Global equity markets fell substantially in the last few months as investors sold off risky assets in the midst of uncertainty about the US debt ceiling and the Euro sovereign debt crisis.  The market was also hit as investors reacted to Standard & Poor’s announcement in August that it had stripped the US of its AAA credit rating.  The crisis on the world’s financial market is further evidenced by the fact that the broad-based MSCI World Index of global shares has lost almost 15% of its value in August. 

This continued market turmoil has had a devastating effect for millions of pension scheme members who also had to absorb the government’s new 0.6% annual pension levy from September this year.  Pension scheme trustees have a legal obligation to act in the best financial interests of scheme members and should ensure that they are not placing the assets of pension schemes with which they are involved at unnecessary risk.  Given the current economic situation, trustees should, where appropriate, take steps to bring investment risk in line with what their schemes can bear in order to prevent further losses. In many cases, this will involve a move towards less risky assets with lower volatility and a reduction in the proportion of scheme assets invested in equities.

Contributed by Michael Wolfe.