Irish pension managed funds made solid gains during January, with an average return of 3.8% for the month. Standard Life Investments and State Street Global Advisors shared top spot with returns of 4.4% for the month, while Friends First/F&C propped up the league table with a return of 3.1%. Over the past twelve months, however, the average fund return was a disappointing 0.3%. Returns for the year ranged from 3.8% (Setanta Asset Management) to -2.0% (Irish Life Investment Managers).
The average managed fund return has been a healthy 11.4% per annum over the past three years. The five year returns are all negative however, with an average return of -3.1% per annum over this period. Irish group pension managed fund returns over the past ten years have been a disappointing 1.8% per annum on average, below the Irish inflation rate of 2.1% per annum over the same time horizon. Four of the managed funds surveyed (those of Zurich Life, Standard Life Investments, Merrion Investment Managers and Setanta Asset Management) outperformed inflation over this period.
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The Minister for Finance announced several changes to the treatment of private pension schemes in his budget speech on 7 December 2010. In summary these changes include:
Currently, employees get PRSI and Health Levy relief (but not Income Levy relief) on their own pension contributions. This relief has been abolished with effect from 1 January 2011. Therefore, employee contributions from 2011 onwards will be subject to employee PRSI and the Universal Social Charge.
Similarly, employer pension contributions are currently exempt from PRSI. This exemption will be reduced by 50% with effect from 1 January 2011.
Currently, tax relief on pension contributions is only available in respect of contributions made on the first €150,000 of earnings. This has been reduced to €115,000. Therefore, for example, if an employee is over 60 he can get tax relief on a maximum contribution of €46,000; that is, 40% (the age-related contribution limit for 60 year olds) of €115,000.
Furthermore, any contributions paid during 2011 which are in respect of the 2010 tax year will be subject to this new limit.
The maximum allowable pension fund on retirement for tax purposes is to be reduced to €2.3 million (from the current limit of €5.4 million) with immediate effect.
Monies withdrawn from an Approved Retirement Fund (ARF) is taxed as income. However, if a person has an ARF and chooses not to withdraw monies in any given tax year (or to only withdraw a small amount), they are nonetheless treated for tax purposes as if they had withdrawn 3% of the value of the fund at year end. This is known as the "annual imputed distribution" and was introduced in order to prevent the use of ARFs as tax shelters.
The annual imputed distribution is being increased from 3% to 5% in respect of asset values at 31 December 2010 and future years.
The maximum tax-free retirement lump sum that an individual can receive will be reduced to €200,000. Any retirement lump sum between €200,000 and €575,000 will be taxed at the standard income tax rate. Amounts in excess of this will be taxed at the taxpayer's marginal rate. This will be effective from 1st January 2011.
Members of Defined Contribution pension arrangements will have access to flexible options on retirement in respect of their main scheme benefits, subject to certain conditions that will be outlined in the Finance Bill.
Pending the passing of the Finance Bill, the deferral of the requirement to purchase an annuity on retirement for Defined Contribution scheme members will be extended by Revenue.
The Government has decided to make a new type of Irish Government bond available to pension funds from 1st January 2011. Furthermore, they will allow insurance companies to sell new products known as sovereign annuities. Sovereign annuities are annuity products where the payment of the annuity is linked directly to the payment of specified bonds.
The National Treasury Management Agency will shortly issue bonds to facilitate the creation of sovereign annuities. These will be either coupon only bonds or zero coupon bonds, and will be available for purchase by any investor, including pension funds. The yields on the bonds will be announced in January 2011 in light of the market conditions prevailing at that time. Any sovereign annuities issued by the insurance industry on the basis of these bonds must be certified by The Pensions Board.
There is no obligation on scheme trustees to buy sovereign annuities or the related bonds. However, trustees may choose to buy sovereign annuities from insurance companies on behalf of pensioners. In this case, the annuity will belong to the pensioner, and the scheme trustees will have no further obligation. Alternatively, the trustees may choose to buy the sovereign annuities (or to buy the bonds directly) in the name of the scheme, or adopt any combination of these approaches. The Minister for Social Protection will change the funding standard to allow pension schemes that invest in these bonds (or sovereign annuities) to reflect the higher yield in their liability calculations to the extent of their investment.
The IAPF recently launched new investment guidelines for trustees and guidelines for members of defined contribution schemes. These guidelines can be downloaded by following this link.
The Social Welfare & Pensions Act 2008 was passed on 7 March. This Act introduced a requirement for pension scheme administrators to be registered and for trustees to undergo regular Trustee Training. For more information, please click here.
Oppenheim Investment Managers has recently been acquired by the Merrion Capital Group. The existing management and staff remain in place and are very enthusiastic and supportive of this development. The company name will remain as Oppenheim Investment Managers until September of this year when it will be re-named Merrion Investment Managers.
Oppenheim commented “This development is extremely positive for our company, employees and clients. We will be part of the Merrion Capital Group, a strong financial brand in Ireland with a recognized international parent. This will provide us with additional resources to support and grow our business and new avenues for distributing our products.”
During the first quarter of 2008, Bank of Ireland Asset Management added resources to their LDI team with the recruitment of Gordon Kearney, an actuary, who previously worked as a pension consultant. The asset management team was complimented by two Trainee Investment Managers, Ronan Crosson and Colin Reddy. Meanwhile, Andros Florides, a research analyst who focused on consumer stocks, left BIAM during the quarter.
At the end of February, Hibernian Investment Managers’ parent company, Aviva plc, the savings, investments and insurance group, unveiled a strategy for combining its asset management businesses to create a single, globally integrated asset manager to be known as Aviva Investors. The new business has an initial £316 billion (US$623 billion) of funds under management and significant potential for future growth.
The existing investment management model will be transformed to deliver greater specialization and focus. A newly formed Global Investment Solutions team will manage those investment capabilities that require scale and a global outlook. This team will focus on a diverse range of products and solutions including quantitative, index, convertibles, asset allocation and structured products. In addition, small local autonomous teams will concentrate on generating high outperformance through active portfolio management. Property will be managed as a separate global entity.
Aviva Investors will operate under a single brand with more than 1,300 employees in 15 countries across Europe, the UK, North America and Asia. Subject to regulatory approval, Aviva Investors will include businesses in Ireland (Hibernian Investment Managers), the UK (Morley Fund Management), North America (Aviva Capital Management, MFM International, Aviva Investment Canada), France (Aviva Gestion d’Actifs), Australia (Portfolio Partners), Poland (CUIM Polska), Spain (Aviva Gestion SGIIC (Gestora)) and Romania (CertInvest). It will have Delta Lloyd Asset Management (Netherlands) as a partner.
Kieran Dempsey joins Setanta Asset Management as Chief Investment Officer. Kieran is returning to Dublin from London, where he is currently Chief Executive Officer of GE Asset Management Ltd.
Alan Hickey joins Setanta Asset Management as Marketing Director. Alan has worked with Swiss Re group for over 11 years.
Bank of Ireland Asset Management experienced significant turnover in the first nine months of 2007. Several senior fund managers resigned from the company, including:
William Killeen was promoted to Head of Balanced Product, while Adam Mac Nulty was promoted to Head of EAFE Product. Brian Routledge was appointed Head of US Equities & Concentrated Global Equity Product.
Leona Nicholson resigned as Head of EAFE Product but rejoined BIAM during the third quarter as Head of Irish Equities & Global Equity Product.
New hires include:
Jude O’Reilly has been promoted to Senior Fund Manager, having been with HIM for 5 years. Jude manages HIM’s Global High Yield Equity portfolios.
Anita Donohoe joins HIM from Standard Life Investments in Edinburgh, and will manage the Euro Financials Equity Fund.
Richard Dunne, Head of Equity Strategy at Oppenheim Investment Managers left in August to join Merrill Lynch.
Setanta Asset Management suffered two blows during May, with the resignation of two of its most senior personnel. Joe Mottley, a Director of Setanta and the firm’s Chief Investment Officer resigned on May 22. Joe had been with Setanta since its formation in 1998 and was Head of Equity strategy from that time until he was recently promoted to CIO. On 31 May, Paul McCarville also resigned. Paul was one of the founders of Setanta Asset Management and was Director of Marketing & Client Services. These losses follow the resignation of co-founder and managing director Dan O’Donovan earlier this year. Setanta have also lost 3 equity analysts in 2007. To date, one of these analysts has been replaced, while Ruairi O’Flynn was recently appointed as managing director.
The 8th Annual UK & Irish Pensions & Investing Summit will take place in Dublin on November 11th and 12th 2008. Fiona Daly, Managing Director of Rubicon Investment Consulting, will be speaking at the conference on the issues surrounding lifestyling in defined contribution schemes. For more information on the summit, please click here.
Hanbury Manor, Hertfordshire, 19-20 June 2008.
Fiona Daly, Managing Director of Rubicon Investment Consulting, recently discussed Investment Trends in Irish Pension Funds at the UK & Ireland Pension Funds Meeting, which was hosted by the European Institutional Investor Institute.
Fiona Daly, MD of Rubicon, spoke at the Summit in November. She participated in a panel discussion on “Choosing Your Portfolio Managers”. Her presentation concentrated on the criteria for selecting passive investment managers. Click here to download the presentation.
Fiona will also be speaking at the 10th Annual World Cup of Investment Management, on February 5-6, in Rome. Further information on both conferences can be found at www.imn.org.
Burlington Hotel Dublin, October 24th and 25th 2005.
Fiona Daly, Managing Director of Rubicon Investment Consulting, spoke at the summit. Her presentation looked at the evolution of pension fund investment strategies during the 20th and 21st centuries.
Click here to download the presentation.
On 23rd September 2005, new regulations came into effect for pension schemes, covering a number of areas. This article, which appeared in The Irish Times on Friday 6th January 2006, looks specifically at the regulations that affect pension scheme investments, and the implications of these for pension scheme trustees. In particular, two separate regulations impact on the investment practices of pension schemes; the Occupational Pension Schemes (Investment) Regulations 2005 and the Occupational Pension Schemes (Disclosure of Information) Regulations 2005.
In the early years of the 21st century, pension funds saw massive surpluses become large deficits over a few short months, as equity markets suffered a series of catastrophes. Beginning with the bursting of the technology bubble in March 2000, equities continued to fall as a number of large companies were revealed to have committed accountancy frauds. The terrorist attacks in New York, Washington and Pennsylvania in September 2001, and the consequent hostilities in Afghanistan and Iraq, led markets further downwards. It was only with the official announcement of the end of hostilities in Iraq in March 2003 that equity markets finally began to recover from the worst and longest bear market in recent history.
A subject of much recent discussion as a way to boost the performance of investment managers, the practice of securities lending (also called stock lending) is something many investors do not intuitively understand. This article sets out in simple terms the basic principles of the practice, the participants, the benefits and the risk involved. Published in the Irish Pensions Magazine in Spring 2005, the article can help investors to ask themselves and their advisors pertinent questions when considering introducing a securities lending arrangement for their funds.
As a pension scheme trustee there are a number of questions you need to ask yourself. Who is minding your money? Why did you choose them? Are they doing a good job? Managing the assets of a pension scheme is just as important as managing the liabilities and it is the responsibility of the trustees of the scheme to ensure that the assets are managed in a responsible and appropriate manner. This article discusses what factors trustees need to consider when appointing an investment manager for these assets. This article was originally published in FINANCE magazine in October 2003.
On September 11th 2006, Steven Harford, Director and co-founder of Rubicon Investment Consulting, was awarded a Ph.D. from Dublin City University. His research applied Artificial Neural Network technology to the problem of processing temporal patterns, with applications ranging from music retrieval to stock market analysis. Dr Harford plans to continue his research in this field, thereby adding value to Rubicon’s range of services.
Rubicon Investment Consulting are pleased to announce the launch of a new tool on their website www.RubiconIC.ie, which will prove useful to investment industry professionals and consumers alike. The new tool, called the Managed Fund Return Calculator, allows visitors to the site to calculate, free of charge, the performance of the 10 main group pension managed funds for any period over the past 20 years. Pension scheme trustees and members can use the tool to compare the performance of the funds in which their assets are invested with alternative funds and against the average.
The Calculator allows the user to select the period (or periods) for which the returns should be calculated as well as to select any of up to 10 managers to be included in the calculation. This is the first freely available tool which allows such a broad comparison of group pension managed funds over such an extended period. Click here to access the Calculator.
On 23rd September 2005, new regulations, which were introduced in the Social Welfare & Pensions Act 2005, became effective. Consequently, all pension schemes with over 100 active and deferred members are required to produce a written Statement of Investment Policy & Principles.
A scheme’s first SIPP must be included in the Trustees’ Annual Report for the year commencing after 23rd September 2005. The SIPP needs to be included in all subsequent annual reports, and must be reviewed at least once every three years and immediately following any change in investment policy.
Further details on the information to be included in the SIPP, and how Rubicon Investment Consulting can help trustees, can be found on our Services page.
The Rubicon Investment Consulting website, www.RubiconIC.ie, provides information on the services offered by the firm, plus news and articles that may be of interest to investors. The site was launched on 5th October 2005, and will be updated regularly.