Pension-fund returns are down

2010-10-09 00:00

WHILE early reaction in the Eurozone seems to have resulted in the worst of the European sovereign debt crisis being averted, the long-term ramifications will be widely experienced by ordinary citizens across the globe, including millions of South African pension-fund members.

Market factors ultimately point to lower investment returns for pension funds. It is crucial for members to know what their current savings are and what they need to achieve their retirement goals and other long-term financial objectives.

Members can also take steps to ensure that they minimise their exposure to risk by diversifying their investments.

Members should ask for information o­n the mix of assets in their retirement fund and to be aware of how this mix changes, especially if the fund should offer a range of investment choices. Ask for advice from the fund or a qualified financial advisor regarding the appropriate level of risk and whether you are saving enough.

Pension funds, in turn, should fully understand their actual exposure to risk. In order to ascertain this, trustees need highly detailed information o­n the actual investment instruments in the fund’s investment portfolios. For example, it is important to know if the fund’s investment managers hold any bonds issued by European countries, and if so, what the extent of the exposure is.

Pension funds must also decide o­n the level of exposure to risky assets that is appropriate, given the profile of the fund membership. This level of exposure must then be constantly monitored and kept under control.

It is imperative for funds to have a well-diversified foreign and local investment strategy and to stay aware of what the sovereign debt crisis means for their funds.

• Craig Aitchison is MD of Old Mutual Actuaries and Consultants.

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