BREXIT THE AFTERMATH €3billion w iped off pensions as Iseq bears brunt of Brexit fears
UP TO €3billion has been wiped off the value of Irish pensions due to the postBrexit equities markets meltdown.
Huge losses were incurred on Friday within hours of the official result.
But these were compounded by further stock market losses yesterday, when the Iseq was one of the worst hit.
It was down by about 10% by close of trading, which saw Bank of Ireland shares down 20% and Ryanair’s shares down 15%.
The continued Brexit blood-letting was rampant in the UK too, with more than £40billion wiped off the value of Britain’s biggest companies.
On the currency markets, sterling plunged to a fresh 31-year low of US$1.321, although it rallied a little in later trading.
Meanwhile, heavyweight financial stocks, house builders and travel firms bore the brunt of the sell-off on the London market.
Barclays Bank even saw their shares suspended for five minutes as automatic circuit breakers sprung into action when their values dropped by more than 8%.
Shocks to the Irish and UK markets had an inevitable knock-on effect on Ireland’s €100billion private pension funds.
The total losses so far to global equities markets over the last two days are estimated to be around 7%.
Even accounting for the small amount of gains other sections of pension funds earned, for example from the bond markets, funds will have seen losses of between €1billion and €3billion.
This will come as little comfort to Ireland’s 730,000 private pension holders.
Some 270,000 of these are in defined contribution pension funds, which carry a proportion more of an exposure to equities than defined benefit.
Any losses, however, are only going to affect those who drew down on their schemes yesterday, or plan to in the coming days or weeks.
For the 469,000 or so in defined benefit pensions, the hit to their funds was similar. But because of the nature of these schemes, and the fact they have guaranteed annuities, they are buffeted by the fact that any hits would have to be taken care of by the companies running those schemes.
Paul Kenny, senior investment consultant at the worldwide consultancy giant Mercer, said his company’s clients will be more affected by what has been happening on markets globally as their exposure to Irish equities would be ‘very, very minimal’.
He pointed out that equities tend to be between 35% and 40% of defined benefit scheme portfolios in Ireland, and they would be spread across the broad global equity markets.
‘Global equities have certainly had a tough time,’ he said. ‘They were down around 4% from Friday and maybe 3% by early Monday evening.
‘So, some 40% of assets may be about 7% over the two days. In pure equity terms, equity portfolios would have lost around 2% to 3%. But on a
‘There is exposure – but it’s very small’
total portfolio level, it might not be down as much as that.
‘The balances of portfolios tend to be made up of other assets, which might actually be positive over the past two days.
‘A lot of investors in Ireland and globally would have a small exposure to the Irish equities. So there is an exposure there but it is very small. Nobody Mercer would advise would have a large exposure to Irish equities, let along any other one single equities market.’
Of the ongoing financial meltdown, Owen Callan, fixed income analyst at Cantor FitzGerald told Bloomberg, said: ‘I think there’s definitely an element of fear. There’s huge uncertainty particularly from the political perspective, not even the economic perspective, in the UK.
‘I think it has shocked people. I think they always figured that whatever outcome came around that someone would have a plan of where to go next.
‘We can see in the UK a passing of the buck, so to speak, of who should be responsible for the political negotiations with the EU and coming up with a plan to make sure that the UK economy doesn’t fall into crisis.’
Finance Minister Michael Noonan said: ‘From an Irish point of view the initial shock has been contained.
‘There’s no sense of panic in Ireland, the NTMA are quite happy that they can fully fund the country for the foreseeable future.’
On Friday, Rose Leonard, President of the Irish Institute of Pensions Management, urged caution to anybody thinking of withdrawing large sums of money from their defined contribution funds.
She told the Mail: ‘People shouldn’t panic. They should leave their money in their pension fund.
‘People panic and take their money out but funds tend to come back within a year or two. The message should be for people not to panic and remember a pension fund is for the long haul.’