IRELAND - While the concept of fiduciary management and implementing consulting could be very appealing to schemes, it does leave a number of issues unsolved, delegates at the 2010 Irish Association of Pension Funds Investment Conference heard.
PiRho Investment Consulting director and co-founder Nicola Ralston said trustees cannot outsource - both legally and conceptually - risk and strategy decisions, which would therefore remain under their full responsibility.
She added: "Trustees will also retain the so-called agency problem. This means that whoever they delegate decisions to, these service providers will never care as trustees do. If they fail to deliver, the problem will remain in the hands of trustees."
Fiduciary management has proved to be a very popular solution for Dutch pension funds in recent years, but has not gained as much traction in countries such as the UK.
Ralston said UK schemes remain very sceptical about the use of these solutions. She said: "On the one hand nobody wants to be the one being the first in doing something new. Fiduciary management needs to reach a higher degree of acceptance in the UK.
"On the other, it is considered to be more expensive than other solutions. However, fees are not always easy to understand and perceptions on costs are sometimes misplaced."
In a separate session, Coillte trustee John Dwyer said Irish trustees were stunned by the "suddenness and cumulative negative effects" of poor investment returns and increased scheme liabilities caused by the market events of 2008, a trustee said.
Dwyer said market losses coupled with higher liabilities driven by "unprecedented increases in mortality assumptions and continuing low discount rates" severely hampered companies' abilities to contribute at higher rates to make up for soaring deficits.
He said: "Scheme members and members' representatives became edgy. The whole situation led to an increased focus on reviewing investment policies and looking for ways to bridge the shortfall gaps."
Dwyer explained the approach used by Coillte to bridge the funding gap - whose size he declined to disclose - and emphasised the need to consistently communicate to all stakeholders during negotiations on a scheme's fundamental reforms.
He said forestry company Coillte's pension fund agreed with the company board, the majority of trade unions and staff on a plan to shore up the scheme's finances.
Under the agreed solution, 31% of the scheme's shortfall will be funded by transfer of non cash assets to the scheme, 22% by a company contribution of an extra annual sum for the next 12 years and 17% by increased staff contribution.
In addition, pensionable pay and pensions will be contained to assumed inflation over five years. This will cover for 15% of the funding gap, while the remaining 15% will be covered by the company's contribution rate of 25% of gross salaries.
This plan was also presented to the Pensions Board - the country's pension watchdog - and to legal advisors and actuaries.
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