IRELAND - Irish defined contribution investors are still more cautious about investing their pension assets than defined benefit trustees, but have yet to follow the trend of moving towards passive investment, suggests evidence presented by the Irish Association of Pension Funds (IAPF).
Details of its annual investment survey suggest DC investors are still more cautious as they have an average 12.5% of their assets in cash, compared with 4.3% at DB schemes.
Rather surprisingly, however, over 70% of DC assets are now invested in active management strategies, explained Jerry Moriarty, director of policy at the association.
"What we found is the split between active and passive was surprising, said Moriarty. "Intuitively it didn't sound right. We would have expected more in passive because that seems to be the trend. But over 70% is still in active investment, perhaps because they are diversifying into alternatives in DC, instead of using balanced managed funds," he commented.
This has worried IAPF officials as they fear investors shying away from equities could miss gains to be had in 2010, as 64.3% of DB assets are invested in listed stocks compared to 58.7% in DC plans.
"This suggests that DC members, stung by losses in pension fund values, remain reluctant to invest in equities. The downside of this is that if equity markets continue to recover in 2010 as they did last year, they will lose the benefit of this upturn," Moriarty added.
The study also found the proportion of assets in defined benefit plan now makes up 67% of all Irish pension holdings. Again however, it is not necessarily a resurgence of interest which is responsible for this increase but, more likely, argued Moriarty, it reflects a fall in DC contributions combined with additional cash injections to try and fund DB pension deficits.
The total value of Irish pension assets rose by 13.6% in 2009, to €72.2bn, the IAPF study indicates. But this is still at least 16.6% below the 2007 peak of €86.6bn.
Moriarty also noted many DB schemes are still de-risking but recognised the schemes feel caught in a ‘Catch-22' situation as they have to deliver a recovery flight path over the next 5-10 years but "investing in equities in the only way to make that palatable".
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