iB Survey Friends First
the three. We distribute our offerings exclusively through Financial Brokers. Advice is a critical part of pension planning and as such we strongly advocate seeking independent professional advice.
Q: How are people being impacted by the winding up of company pension schemes?
A: We are mainly seeing schemes wind-up for one of two reasons. Firstly because the company itself is going into liquidation and secondly because the company has a Defined Benefit pension in place which the company can no longer afford to support. If an employer is closing down it obviously has far reaching impacts, beyond pensions, on employees. If a DB scheme is wound up it can also have a significant impact, but one which may not be as obvious. Usually a scheme is winding up because it has given its members a promise which it can no longer afford to keep. Lots of numbers get bandied about but in essence the member is usually getting a cash alternative to this promise which is worth a fraction of it. The broader impact of wind ups is really the need for a mindset shift. Up until recently a large portion of the labour force were relying on two institutions to fund for their retirement – their employer and the State. They probably didn’t give it much thought otherwise. Well we now know that neither employers nor the State InBusiness | Q3 2014
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Individuals will increasingly need to take a greater interest in, and responsibility for, providing for themselves in their retirement. Unfortunately this is going to cost us more now, but the cost of not taking responsibility now could be even greater.
can be relied on to provide a high quality of life in retirement. Individuals will increasingly need to take a greater interest in, and responsibility for, providing for themselves in their retirement. Unfortunately this is going to cost us more now, but the cost of not taking responsibility now could be even greater.
Q: How are you addressing people’s concern given the volatility in the market in recent years?
A: Most people’s initial reaction to volatility was not surprisingly a knee jerk reaction to leave markets. This is an emotional response and unfortunately usually the wrong one. There are lots of documented research into the psychological drivers of investors and
there is a natural tendency to buy into markets after we have seen growth (ie. nearer to the top of the market) and leave them after we have seen a sharp fall (ie. nearer the bottom). Those who did move assets to safer investments during the financial crisis have not participated in the strong recovery over the last few years. The investment industry has responded to these behaviours by introducing target risk products. These are multi asset products managed in a way which tries to maintain a constant level of risk. This way it can be better matched with a customer’s attitude to risk. So customers with lower appetite for risk can select a fund managed with a low volatility target. These are proving very popular.
Q: Some have called for a Minister dedicated to pensions. What are your thoughts on this?
A: I would be an advocate of this. We do need Government supervision of areas which have a long term strategic importance for the country. The pensions ‘time-bomb’ has been much talked about by successive Ministers for Welfare or Social Protection, but it simply does not get the focus when it is part of such a large and contentious brief. Over the last couple of decades we have had four or five major ‘reports’ on the structural reform needed for pension provision, but very little actual change. A dedicated Minister might just give it the focus to get the ideas into actions. 93
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