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Is your pension at risk…….(Perhaps it should be!)

April 28, 2016
Harvest News
Financial Planning for Retirement Planning

An observational survey of our client base identified that many of our clients take a highly conservative approach to investing their portfolio. However, in an environment of paltry returns on asset classes traditionally seen as low risk (cash and bonds), combined with increasing life expectancy, it is worthwhile to seriously review our attitudes to risk.

Deposit rates are at historically low levels, with some international banks charging customers to hold their deposits. The outlook suggests a very flat year for bond prices and yields in 2016 and even beyond. So what impact does this have on your income in retirement?

We have used the example of an individual, aged 60, retiring with an Approved Retirement Fund (ARF) of €1M, drawing an income of 4% of the value of the fund annually. We have assumed inflation is an average of 3% per annum and income increases of 2% per annum over retirement. Portfolio A is invested in cash/bonds which would currently yield below 1% per annum. Portfolio B invested in a well diversified multi asset fund targeting a return of 4% per annum.  decline in arf value

The graph shows that by investing in what would have traditionally been seen as the ‘lower risk’ Portfolio A, our client would run out of money in their ARF at age 82. For our client invested in Portfolio B, they would still expect to have a fund of over €600,000 available to them at age 82.

Harvest Financial Services Limited presented the importance of taking appropriate risk at our breakfast briefing on investing your pension fund. The presentation focused on the challenges faced by investors in the current low yield environment and the alternatives available to satisfy the need for regular returns.

Some photos of the event


Importance of risk in pension