Irish default fund members were less likely to switch in Covid crisis

Irish members of defined contribution schemes invested in default funds were less likely to switch funds in the peak of market volatility during the Covid-19 crisis in March.

Speakers from both Irish Life and Zurich at the Irish Association of Pension Funds’ (IAPF) defined contribution conference made reference to fund switches during the height of the crisis.

Speaking on the first day of the conference, Monday 14 September, Irish Life Corporate Business managing director, Oisín O’Shaughnessy, said there was a five-fold increase in the number of member calls in April compared to a normal month in 2019.

“There was a lot of volatility in March, April, May and June and we experienced a lot of interest in markets and a lot of anxiety and fear. For context, member switching requests were a tiny proportion of the overall calls we received and pension portal visits, but at the same stage we saw a huge increase in the number of pension scheme members switching to cash in that period,” he stated.

O’Shaughnessy said in the period between late February to April, the number of switching requests amounted to the total number of requests for the whole of 2019. However, he said proportionately Irish Life saw a much higher percentage of those in self-selected funds switching that those in default funds.

“Those customers were much more likely to stay where they are in times of volatility, which in some way gives us comfort that the messaging and the advice people are getting is appropriate for the long-term investment horizon that pension members have.”

This was echoed by Zurich investment consultant, Ian Slattery, speaking on the second day of the conference, who said the overall switches Zurich saw were low in absolute terms but the two largest weeks for switches during the peak of the Covid-19 crisis were the 13 March and 20 March.

“In those two weeks where we saw the most amount of market volatility we saw about 25 per cent of the total switches that we saw for the first six months of the year,” Slattery said, adding that there is always heightened switch activity at times of heightened volatility.

Slattery said that within Zurich, less than 20 per cent of the switches were from group DC policies, which he described as “very encouraging”. In addition, of the 17 per cent of switches from group DC, 80 per cent of those were for people who had self-selected and were not in the default fund.

“Less than 3 per cent of switches overall…in the first six months of the year were from DC members in a default strategy. That is very encouraging because if you think about what we’re looking for a default strategy to do; we’re looking to put structure in place, we’re looking to give comfort to members, we’re looking for people to have sufficient risk and stick with the plan, and let that glide path or guide path work down to retirement.”

Slattery added that now is a “good opportunity” to have discussions around fund switches but the providers should not “belittle people for behavioural biases”.

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