16 Dec 2017 | 09.49 am
Interview: Bernard Walsh, Bank of Ireland Investment Markets
Property Fund yield attracts pension savers
16 Dec 2017 | 09.49 am
Bernard Walsh, head of pensions and investments at Bank of Ireland Investment Markets, has worked in pensions and investment-related roles in Bank of Ireland for the last 14 years. Before that, he worked with Ulster Bank Markets, Barclays Bank and Permanent TSB.
Walsh (pictured) pays attention to any new proposals issued by the Pensions Authority, including its recent suggestion that the defined contribution pensions landscape needs to be streamlined down from tens of thousands of schemes to just a few hundred.
“The proliferation of schemes has been primarily on the back of the establishment of one-person executive plans,” Walsh explains. “I can see some benefit in creating master trusts or similar models to allow consolidation, particularly in relation to cost. However, many company directors will want flexibility in investment options or self-directed solutions that may not be achievable through a larger ‘one size fits all’ approach. A potential option is that models could be rolled out and smaller schemes could be offered the opportunity to join them.”
For the thousands of small company pension schemes in Ireland with under ten members, Walsh sees potential challenges with the Pensions Authority’s streamlining proposal.
“One challenge that the revised model may face is how the scheme will be serviced. Today, executive pensions are often serviced locally by trained advisers from bancassurers like Bank of Ireland, or by brokers. This usually includes a one-to-one annual review and ad hoc contacts, particularly in response to markets events. The proposed landscape should include a framework that replicates this high-level service.”
There are around 68,600 one-member pension schemes currently operating in Ireland, which typically comprise company directors. In Walsh’s view, these one-member pension schemes are not a big cause for concern in the pension landscape. He adds that when it comes to considering their efficacy, an important element is that their structure should reflect the nature and lifestyle of the contributor.
“Typically, we are talking about entrepreneurs and senior business people. The structure should reflect that they often take lower salaries in the early years of the business and build them up over time. They should be able to extract wealth from their company in a tax-efficient manner using this structure. Another option could be that the structure could facilitate them to invest in their own business when required.”
Walsh also sees a balancing act being required around the Pensions Authority’s favouring of a defined contribution scheme comprising a default investment with options for those who want to opt out rather than vice versa. “Research has shown that too much choice can lead to inertia and put people off making an investment decision,” says Walsh. “The important thing is to have a reasonable level of choice to meet the needs of the majority, and to allow options that members can switch to if, for example, they want to de-risk their holdings.
“There are many new and innovative investment vehicles that offer opportunities for growth, along with a healthy level of risk management. It is important that such solutions can be added readily. The vast majority of scheme members will select the default strategy. Therefore, having real rigour on deciding on a default fund should be a key priority.”
Asked what type of investment funds do clients currently favour, Walsh says: “While property has come back in favour again in recent years, rather than buying single properties we are seeing continued interest in our Property Fund. A healthy yield of about 5% is a real attraction, along with solid demand for commercial property. Investors are aware of the importance of diversification through a fund holding a geographical spread with over 60 properties.
“Another trend that we see is the move from actively managed funds only to customers choosing a blend of active and passive management. Our suite of Prime Funds is grabbing attention, as it offers multi-asset diversification, a real opportunity for growth and a built-in risk management tool that aims to de-risk your fund when markets become more volatile.”