# are pension safe ?



## chelsea07 (28 Feb 2009)

Hi

I started a pension last year with Irish Life and although the value of the fund has fallen from EUR 40 k to EUR 26k, I understand this is due to the economic crisis we are in at the moment.  I am thinking of investing more into the plan this year but I have concerns.

My concern, is if Irish Life were to be takenover, or nationalised is my pension fund safe, or could i loose it, like a shareholder looses his share ?

thanks


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## StevieC (2 Mar 2009)

Rest assured your pension is safe aside from normal market conditions that affect unit price.

Irish Life alone is a very profitable company and in real terms is worth more than the combined value of it and PTSB on the stock exchange. 

If another company takes it over then they take over the pension liabilities as part of the takeover. There is no question that your fund could just disappear in the event of a takeover.

Hope this puts your mind at rest.


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## chelsea07 (3 Mar 2009)

yes it does help, thanks for your response


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## StevieC (20 Mar 2009)

Some points;

1) Pension funds have underperformed because the world financial system is in chaos and stockmarkets everywhere are down. This is not something any pension fund provider could have predicted, none of them have a crystal ball.

2) Pension funds provide generous tax reliefs (at present, this may change). These tax reliefs offset fund loses to some extent and make pension schemes still look viable.

3) I hear the mantra "past performance is no indicator of future performance" far more than "equities will always come out on top".

4) The move away from Define Benefit arrangements was happening long before current market woes. Making Defined Benefit scheme liabilities a requirement on companies balance sheets was the death knell of the defined benefit scheme. Advances in medicine and people living longer on average also increased the cost of annuities and therefore the cost of defined benefit schemes. Not everything can be blamed on current market problems which significantly influence the 10 year figures being quoted.

5) Pension products do not have to be risky. You can invest in cash or gilts which are very low risk. You benefit from significant tax relief and take a tax free lump sum at retirement with the balance buying an annuity product.


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## StevieC (23 Mar 2009)

Your comparison between endowment mortgages and pension schemes is not comparing like with like at all. Please tell me about another investment product (apart from SSIA's which were a once off) which attract the kind of tax relief pension arrangements do. Even if the interest on a cash/gilt fund didnt cover the charges which in most cases it will as the annual management charge on a pension is typically 0.75% and on a PRSA 1%. You are still making money on the tax relief even if you are a lower rate tax payer. Show me another investment which guarantees 20% growth (lower tax relief rate before relief on PRSI if applicable).

Contact any reputable insurance broker and they will provide a quote for a pension provider on a cash/gilt fund and the return will be positive even for lower rate tax payers in most cases.

I agree that the management charge on a deposit based pension should be lower than that of a managed fund but insurance companies have to make a profit too and when you are talking about a small premium product, the start up fees for paying an administrator to set the plan up, issue all the documentation, pay the sales person etc mount up. You can't expect a pension provider to provide the products for free or at a loss.

The Pensions Green paper was hardly the forum for companies to justify dismal fund performance. The paper is looking for ways to change legislation/pension rules to benefit customers not for companies to offer a mea culpa. Like any interest group insurance companies have the right to lobby for incentives to their industry, just like the builders or the tourism industry. It doesnt mean that the government have to accept their recommendations, but at least they are trying to come up with solutions even if there is obviously some self interest involved.


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## Butter (23 Mar 2009)

Hi Peter,
In the absence of the kind of fund that you mention, what do you think are the best options available to the kind of person you are talking about? Middle-income, with a defined contribution pension?
I really feel like I am sending more money every month into the black hole of my pension with no hope of it providing a decent pension in the future. This is even with top rate tax relief, employer's contribution of 8%, index-linked contributions and avcs.  (Should I mention Irish Life???)
What alternatives are there?


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