The following is a list of some important risks factors that prospective investors should consider prior to making a decision to invest in a pension product, including the PRSA, Retirement Bond and ARF. The list is not intended to be comprehensive or exhaustive. It is for informational purposes only. Various other risks also apply.
Pension Risk
Each investor is responsible for making all of the investment decisions in relation to his or her pension. These decisions may not be correct. As a result, there is a risk that the pension may be under funded by the investor and/or the value may be insufficient at retirement so that the investor's long-term retirement needs may not be met. It is important that each investor seeks independent professional advice prior to making any decisions which have tax, legal or other financial implications.
No Assurance of Investment Return
The value of the investment may go down as well as up. Investors may lose some or all of the money invested. There is no guarantee that the pension will meet its objectives of long-term capital appreciation or the level of income required.
Market Risk
Past performance is not a reliable guide to future performance. The pension may be invested in particular securities, such as stocks or bonds, which can fall in value at any time due to the value in global stock markets.
Currency Risk
The pension may have exposure either directly or indirectly to non Euro currencies. Currency movements may impact negatively on the overall performance of the pension product.
Credit Risk
Investments may be adversely affected if any of the institutions with which money is deposited suffer insolvency or other financial difficulties (default).
Liquidity Risks
The pension may be invested in securities which cannot be easily sold in the market at a fair value and therefore cash may not be available to the investor when needed.
Inflation Risk
Pensions are a long term investment and the effect of inflation can erode any ‘real’ investment returns over time.
Tax Risks
Tax laws and regulations are constantly changing, and they may be changed with retrospective effect which may have a negative impact on pensions or underlying investments. No assurance can be given regarding the actual level of taxation that may be imposed upon pension schemes or underlying investments. Any tax information that may be provided for Irish resident clients is based on Davy’s current understanding of the tax legislation in Ireland and the Revenue interpretation thereof. It is provided by way of general guidance only and is neither exhaustive nor definitive and is subject to change without notice. It is not a substitute for professional advice. You should consult your tax advisor about the rules that apply in your individual circumstances.
Investment Management Risk
The pension scheme and/ or any underlying investments in funds can be subject to investment management risk, whereby there is a risk that there will be a financial loss due to the investment manager making the wrong investment decisions. The investment manager may choose the wrong asset allocation or specific stock selection or overall investment strategy.
Bomb Out Risk (For ARF Investors)
Specifically with ARFs, there is a risk that an investor who takes regular withdrawals and/or imputed withdrawals over the life of his or her retirement is exposed to ‘bomb out’ risk, which is the risk that the income needs of the investor may not be met by the value of his or her ARF.