27 Dec 2017 | 11.24 am
Interview: John Groarke, Irish Life
Pensions complexity turning savers away
27 Dec 2017 | 11.24 am
John Groarke, Marketing Pensions Product Manager with Irish Life, is an actuary with 17 years’ experience in the life insurance and pensions industry. Assessing proposals to reduce the number of defined contribution pensions currently in operation in Ireland, Groarke says that any measure to simplify the pension landscape is welcome.
“The number of different types of pensions, variations and rules do not serve members well,” says Groarke. “Complexity is regularly cited as a turn-off for people looking to save within a pension. Irish Life would be very supportive of any proposal that reduced unnecessary administrative effort and left the members clear to focus on maximising their pension pot.”
Given the complex nature of existing pensions systems, Groarke cautions that any changes would have to be applied carefully to avoid unintended consequences for the schemes and their trustees. How Pensions Authority proposals for pension simplification will affect small company pension schemes is not yet clear, says Groarke. “On the face of it, a ‘slimmed-down’ pension landscape should be beneficial for members and result in increased participation and contribution levels, which is better for everyone,” he suggests.
“One area that does concern us is that of trustee experience and qualifications. The initial discussion paper appears to make it extremely difficult for ‘lay’ or non-professional trustees to meet the required standards. We think this could be a pity, as lay trustees play a very important role, usually as a strong representative for employees and members. Lay trustees often bring years of experience in dealing with pension schemes and communicating with members. The Pensions Authority needs to consider their role in any future arrangements.”
Pension reform proposals from the Pension Authority have as-yet unknown implications for the nearly 69,000 one-member pension schemes in Ireland, most of which are used by company directors. “Care has to be taken that any changes don’t adversely impact existing arrangements, especially for those directors and senior employees who are close to retirement or have been saving to maximise their pension pot under the current structures. We will have to wait and see what the Pensions Authority proposes but, again, simplification is the key.”
More generally, Groarke stresses that the two most important things for anyone with a pension are maximising the amount they contribute and making sure they get financial advice. “Anyone either starting out on their pension journey or with an existing pension pot needs to get regular financial advice to ensure that the plan is starting out on track and is staying on track to provide the retirement income they hope to get.”
The right recommendation around investment options is also crucial for pension savers. According to Groarke, the investment option recommended should take into account the risk appetite of the member. “That means matching lower, medium or higher risk investment funds to low, medium or high risk investors,” he says.
“Another part of the advice journey is ensuring that the investment options are tailored to meet the retirement age and expectations of the member or saver. This might mean moving into lower-risk funds as they get closer to retirement, or moving some of the fund into cash to match the tax-free lump sum. Default investment options are fine but members and savers should really be getting expert financial advice and an investment recommendation that reflects their appetite for risk, their age and the likely decisions they are going to make at retirement.”
Asked what type of investment funds do clients currently favour, Groarke says: “The majority of our pension clients are choosing multi-asset funds which reflect their appetite for risk. Irish Life MAPS is our range of Multi-Asset Portfolio fund which are invested in a wide range of shares, bonds, property, cash and alternative investments. Investing in a wide range of assets reduces the exposure to any one asset, country or industry. Which should mean fewer ups and downs over the longer term within the funds. The funds range from lower risk funds, with more low risk assets like cash and bonds, to higher risk funds, mainly invested in shares, which traditionally offer the potential for greater returns.”
“We launched Irish Life MAPS in 2013 and since then over 50,000 people have chosen them for their pension and investment plans. A simple first step is to take our quick quiz on irishlife.ie to get your investor profile and then see which of the Irish Life MAPS funds could suit you best. Then as always we’d recommend you talk to your financial broker or adviser to get more information to help you get started.”
“We’re also seeing that some of the very experienced pension clients are choosing to manage their pension investment even more directly by choosing our Self-Invested Fund (SIF). Through SIF, within their pension fund, they have access to a range of investment options including a discretionary stockbroking service and, for those looking to invest directly, an Online Trading account.”