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Work-based pensions take €8bn hit from pandemic

14/01/2021 Posted by IAPF | Comments(0)

WORK-based pension schemes took an €8bn hit from the pandemic last year.

The value of assets in occupational pension funds have since recovered, but they remain slightly below pre-pandemic levels, according to a new ‘Behind The Data’ report on pensions from the Central Bank.

Occupational pension fund assets make up around 30pc of the assets of households, the Bank said.

Jerry Moriarty of the Irish Association of Pension Funds said it was interesting how large a portion of household savings pensions represent, particularly as the figures do not include any value for public sector pensions.

The moves by employers to close down defined benefit (DB) pensions and replace them with defined contribution (DC) schemes means households are now more exposed to financial market movements.

“The transition of pensions from defined benefit to defined contribution also means households are increasingly exposed to financial market shocks,” the Central Bank report states.

With a defined benefit pension, the risk is borne by the sponsor company. These schemes promise a set level of pension based on years worked and final salary.

Any shortfall in meeting this commitment has to be met with higher contributions from the employer, the employee, or both, or a reduction in the promised pension.

The expense of these schemes has seen their number fall by half in the last decade.

With a defined contribution scheme, the risk is borne by the pension holder. The pay-out at retirement depends on what is paid into the scheme and the return from the investments.

The Central Bank report found that the assets in occupational pension funds, made up of DB and DC schemes, was €118bn in June.

This figure does not take account of pensions people take out themselves, such as those in personal retirement savings accounts (PRSAs) and retirement annuity accounts (RACs).

It also excludes State pension payments, and pensions paid by insurance companies.

The report found that the value of occupational pension funds was second only to deposits for households.

Residential property assets of households are valued at €542bn.

There are 500,000 members of occupational pension schemes, with 75,000 different DC schemes in existence.

Central Bank statisticians said the impact of Covid-19 up to the third quarter last year saw pension fund assets experience a sharp €8bn price fall.

The number crunchers said that while the onset of the pandemic caused a decline in pension fund asset values, they have largely recovered to sit at 1.8pc below pre-pandemic levels.

The report warns that the increasing dominance of DC pension funds leaves households more exposed to financial market movements.

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