Ifac advises Tipperary pension holders to diversify to protect their funds from events such as COVID-19

by Martin Glennon, Head of ifac Financial Planning.

Since COVID-19 struck in February, we have seen a huge hit to world economies. The recent announcements of various vaccines have given hope that 2021 will be more “normal”, and the imposed house arrest has given many of us a taste of what retirement could look like. But how have our pension funds coped with the pandemic?


The first thing to say is that pension funds are not asymptomatic. They have all been affected by COVID-19. And, that should be no surprise. The average medium-risked pension fund has about half of its money invested in stock market shares and commercial property.


We know the damage that COVID-19 has inflicted on many businesses. This has impacted the value of stock markets, which in turn has altered the value of pension funds. Working from home has become a new normal but has also affected the values on commercial properties and subsequently, your pension fund.


The balance of pension funds is typically invested in government bonds and cash, both of which are offering negative yields to many investors. As you can see, it has been a difficult period for pension funds.


As with people, however, we have seen different effects of COVID-19 on pension funds.

A small minority of medium-risked funds have had mild symptoms. These are the equivalent to a person who tested positive but only had minor flu-like symptoms. These funds suffered mild falls in value since the start of the year but have made a full recovery since and are now thriving. The better performing medium-risk funds are up 10-12% year to date.


Most medium-risk funds are at par or just above the break-even point for the year. These funds saw drops of between 10-15% back in April, but have recovered well and are showing a return of circa 3-5% year to date.


And then there are the “long-COVID” sufferers. These funds experienced similar drops in April, but they still have symptoms and are finding it hard to get back to break even. These funds are in the range of minus 3-5% year to date.


So, as with humans, the effect of COVID pension funds has been wide-ranging. Some funds continue to suffer, many are okay again, and a small few felt minimal impact.


What can you do to protect your fund from any future event such as a pandemic? When it comes to protecting your pension funds from events such as COVID-19, the advice is totally different. As humans, we are encouraged to isolate to avoid the spread of the virus. With pension funds, the advice is to do the complete opposite and mix as much as possible.


Spread your pension money amongst as many assets as you possibly can. This diversification helps to reduce risk levels.


If you want to know how your pension funds have been affected, talk to your advisor or contact your local ifac office or ifac‘s Financial Planning team for support.

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