IRELAND - Irish pension fund trustees have been warned they must treat member education as an important issue, if they are to mitigate the "time bomb" of defined contribution (DC) members retiring on less than they expected.
Speaking at the IMN UK & Irish Pension and Investing Summit earlier this week, Paul Kenny, the Irish Pensions Ombudsman, highlighted the potential problem with DC pension schemes and said around 80% of Irish plans are choosing to apply the default investment option.
He told delegates: "One of the things I'm finding from complaints is that over the last few years defined benefit (DB) schemes have been winding up and members are transferred to DC schemes. However, very few trustees in my experience have considered the possibility that a single default option is not appropriate."
Kenny pointed out that members of different ages will have different risk profiles, so a single default fund would not necessarily offer the best option for a membership where there is a varied age range.
Chris Edge, chief executive of AllenbridgeEPIC Investment Advisers and a panellist at the conference, also admitted this is a "real time bomb waiting to happen", but suggested the issue will not crystallise until people who have had no access to a DB scheme begin to retire.
He noted this issue is already a focus of the UK Pensions Regulator (TPR), which published a review of DC communication last week. Edge suggested the review is being used to ascertain whether there is a problem and, if so, what the regulator should do about it. He claimed "the answer will be they will become more prescriptive".
Edge argued: "The fact people take the default option is a lack of education. It is the responsibility of trustees to make an appropriate number of options available to members, and even more important to make sure the member has sufficient education to make the right decision."
In the session, chaired by John O'Connell, director of Trident Benefit Consulting, the panellists also questioned the role that consultants played in the impact of the financial crisis on pension schemes.
Edge admitted the traditional consulting model had flaws and said consultants had come under fire. "One of the major criticisms of consultants is that they have not been as proactive with their clients as they should have been. What is the result of this, along with other factors, is that the consulting model is moving towards implemented, delegated and fiduciary management."
However Kieran Bristow, chief investment officer at Irish Life Investment Managers, said the impact of the financial crisis was the result of a number of factors so it is "too simple to blame a particular sector".
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