IRELAND – “Benign” conditions, including higher bond yields and strong equity and property markets, have boosted the health of Irish defined benefit pension schemes in the first quarter, according to Mercer Investment Consulting.

According to Mercer estimates, average funding ratios have improved by between 10% and 15% from the end of 2005 to 31 March 2006.

“The improvement in funding over the first quarter 2006 represents by far the most significant rise we have witnessed over any single quarter since 1999 and sees the ratio at its best level since mid 2002,” said Mercer senior investment consultant Michael Curtin.

“Gains of this magnitude are rare; Mercer has not seen any other quarter over the same period where funding has improved by more than 6%”.

According to Mercer, a substantial rise in long-term bond yields (falling liabilities) has been largely responsible for the improvement in funding rather than the rising equity market.

The negative experience of 2000-2003 and the more positive experience over the last year have served to highlight how sensitive funding ratios are to changes in bond yields, the Mercer statement added.

“Defined benefit pension funds are increasingly recognising that bonds may provide a better match for defined liabilities.

“Mercer noted that against this backdrop, many schemes may wish to re-examine their strategic asset allocation. This is especially the case with equity allocations in discretionary managed funds now at 75-80%, the highest since Mercer began tracking pension fund asset allocation back in 1988.”

According to Curtain, recent market conditions could provide Irish pension funds with a “rare” chance to “take some risk off the table and re-balance assets”, while still enjoying the benefits from long-term exposure to real assets.

“Funding ratios have been in decline for a number of years, principally as a result of falling bond yields, so the recent improvement will be seen as a very welcome development,” said Curtin.

In other news, social affairs minister Seamus Brennan will announce details of the upcoming National Pensions Forum and launch National Pensions Action Week 2006 on April 24.

Brennan will also meet with the new Pensions Board members.

The briefing will be held at the Pensions Board headquarters in Dublin. It will be hosted by Brennan, Pensions Board chair Tiarnan O’Mahoney and Pensions Board chief executive Anne Maher.