IRELAND - Trustees should be constantly reviewing the asset allocation in their pension funds' investment portfolios to mitigate risk, the Irish Pensions Board has suggested.
Brendan Kennedy, chief executive of the Irish Pensions Board, noted in the organisation's annual report "it is not always clear to the Board that the trustees are aware of the investment risks that they are taking" and urged "trustees to review their investment strategy constantly" in order to identify the risks they are taking.
He pointed out while the "high equity content of schemes" was the main reason for the recent improvement in their funding position "there is risk that poor performance in the equity markets would have significant impact on the funding level of those schemes".
That said, 70% of defined benefit schemes satisfied the Board's funding standards last year compared with only 57% at the end of 2005.
The Board "is nearing completion" of a report for the Irish government on funding standards, a spokeswoman confirmed to IPE.
Kennedy noted changes to trustee standards might be needed in order to allow the Board to continue "to fulfil its obligations appropriately in terms of mitigating risk while minimising the compliance burden on schemes", but no specific details were given.
He was also critical of the perspectives placed on returns by pension funds and the surrounding asset management industry.
"Many contributors [to pension schemes] (and much investment commentary) focus too much on potential investment returns and not enough on the resulting risk," said Kennedy.
He stressed awareness of risk was particularly important in the increasing number of defined contribution schemes, and suggested members must also be made aware of the risk they are bearing.
Membership in defined contribution schemes is currently just over 255,000 people while the Board registered a total of 797,370 active members in occupational pension schemes last year, up from 734,699 in 2005.
Figures show 61.8% of all persons over age 30 in employment now have a pension.
To increase pensions takeup, the Pensions Board last year suggested the introduction of a compulsory supplementary pension for all Irish workers.
In the meantime, the Board has been granted new powers to enforce the currently mandatory pension offering by employers along with other legislation.
From this year, it can issue 'on the spot' fines for minor offences where employers fail to notify the Board of their compliance position or trustees fail to complete their annual report on time.
Figures indicate 9% of employers have yet to notify the Board whether they are offering occupational pension provision to their employees.
Last year, 354 audits on compliance were carried out and further investigation was necessary in 84 cases, five of which related to employer contributions.
Construction sector employers are said to be worst when it comes to paying contribution for their workers' pensions, Kennedy pointed out but recent data published by the €1bn Construction Workers Pension Scheme revealed the number of workers contributing to a pension has increased by over 17% to 94,000 employees over the last year.