Pension Fund Choices

Changes for our pension fund choices are due soon for 2009.

Last year I chose 50% Medium risk (fund 2 below) and 50% Low risk ((fund 1 below)guaranteed 0% minimum growth). The Medium risk fell to around -35%.

I currently pay in 6% salary per month, started 4 years ago, which is matched by my employer.
I'm 32, one dependent, no debt apart from mortgage.

What would people recommend for future contributions? My gut feeling is to go more towards high risk based on the fact that any shares bought now can only increase in value in the long term... but I'm a complete amateur.

Our choices are listed below:

Fund 1: Secured Performance Fund (Low Risk)
Typically 60% to 80% in Equities; balance in
Properties and Fixed Interest Securities.
Capital Guarantee.
Smoothed Investment Returns.
Management Fee is 1% p.a.

Fund 2: Consensus Managed Fund (Medium Risk)
Typically 60% to 80% in Equities; balance in
Properties and Fixed Interest Securities.
No Capital Guarantees.
True Investment Returns.
Management Fee is 0.65% p.a.

Fund 3: Global Equity Fund (High Risk)
100% Equities.
No Capital Guarantees.
Market Related Investment Returns.
Highest Growth Potential – Greatest Volatility
Risk.
Management Fee is 0.65% p.a.

Fund 4: Pension Protection Fund (Low Risk)
Active Management by Irish Life.
100% in long dated Eurozone govt. bonds.
Pension Protection – Capital Guarantee.
Management Fee is 0.65% p.a.

Fund 5: Cash Fund (Low Risk)
Active Management by Irish Life.
100% short dated money market instruments.
Capital Security.
Management Fee is 0.75% p.a.

Fund 6: Capital Protection Fund (Low Risk)
There is an equity holding, however the majority is invested in Cash Deposits & Bonds.
Active Management by Irish Life.
Capital Guarantee.
Management Fee 1% p.a.

Fund 7: Global Access Equity Fund (High Risk)
100% Equities.
Multi-Manager Fund.
Market Related Investment Returns.
Highest Growth Protection – Greatest Volatility
Risk.
Management Fee is 1.3% p.a.

Fund 8: Safe Deposit Fund (Low Risk)
ECB Rate + 1% until December 2009
Thereafter, ECB Rate only applies until Dec 2010
From Dec 2010 the variable rate then applies.
Invests in Cash Deposits.
Management Fee is 0.75% p.a.

My advice is sit down with an independent broker and do a full factfind and review as just posting the information you've given will not give anyone a full picture of your financial health.

You seem risk adverse giving your initial choice of funds so diving in at the deep end isnt necessarily the best course of action for you.

To find a reputable broker in your area you can contact the Irish Brokers Assocation at www.IBA.ie or the Professional Insurance Brokers Association at and they can tell you a list of brokers in your area.

Thanks Stephen.

I was actually surprised when I reviewed my choices from last year that I took the safer options: it was possibly based on the fall I'd seen in my equity-based SSIA the year before.

I won't have time to consult a broker unfortunately, as the choice must be made this week; the pension is administered by the company on employees' behalf. What other information would a broker need in order to advise me?

Mainly your general risk adversity. Have you other investments/savings, are they in low/medium/high risk areas.

Your level of income/disposable income, something you probably dont want to print here.

The age of your dependant as this will impact the amount you wish to invest and have locked away as there may be other things like college education you wish to fund for.

Without knowing all of the above and based on what you have said, I would take the following course;

- Continue to invest 6% as this is matched by your employer and effectively doubles your pension investment.
- Dont be persuaded by a slick sales person to throw extra money into the pension fund to make up for previous losses, just stick to the 6% for now, you can always contribute more at a later stage when markets are not in such a state of flux.
- Dont try to chase loses. You know the story of a gambler who loses but keeps on gambling. Unless you really know what you are doing (which you have admitted you dont) then a high risk strategy should be avoided. Yes money invested is down but it has time to bounce back before you retire.

Given your short time period to make a choice, I would go for Fund 4 (Pension Protection Fund) if I were in your shoes. Its low risk, has a capital guarantee and a low management charge (0.65%). Markets are still going to be rocky this year so invest any future contributions in this fund but leave your existing monies where they are incase there is some recovery so you do not take the hit by transferring to a safer fund on your existing medium risk fund. Then make a date in your diary for next year to review the situation again with someone independent and reputable.

Hope this helps

Stephen

Stephen, that helps a lot, thanks.
My disposable income isn't huge, (plus we just took a hefty paycut) and I'll (hopefully) need to fund college in the next 8 - 10 years, so locking everything away isn't a great idea.
Thanks again.

Kinda on the same topic: I'm with Irish Life at the mo, actually I've no choice, my employer chooses for me !
I had my lump-sum and yearly contributions in the 'Secured Performance Fund'. Last year this was grand as I didn't lose money, as has been the case for the last few years.
BUT.....in my statement (which I just got, & I've only until April 1st to make my choices for next year) it says the 'Secured Performance Fund' is still an option, but:
1. You can't add to it (but there is probably a yearly charge), and
2. It will cost 39% to move it. Hense fluxed if you do & fluxed if you don't !!!!
I presume further contributions will go into a seperate 'lump-sum' from now on, if I'm reading this right, I find these statements confusing ie. are full of figures/small-print/etc !!
This seems bizare and very unfair to me !
Any ideas/comments on this ?