Irish defined benefit (DB) schemes closed out 2015 with declining funding ratios, after volatile equity markets wiped out funding gains made over the course of the year.
LCP said the funding level of its sample DB scheme fell 2.3 percentage points to 96.1% over the course of December, below the 96.8% funding level recorded at the beginning of the year and well shy of its funding in excess of 100% in May.
The consultancy said equity market volatility in December cancelled out the gains achieved in the two months prior to December but that global equity markets overall finished nearly 10% higher than at the beginning of the year, at least when returns were measured in euros.
In a summary of December markets, LCP also warned that the rate hike by the US Federal Reserve was likely to be the first of many by central banks globally.
“Now that the Federal Reserve has pulled the trigger and hiked rates,” it said, “all eyes will be on the timing of additional increases, and if other central banks – particularly the UK – will follow.”
Those exposed to commodities stocks witnessed a continual decline in prices – down 8.6% in December alone – as the 32.9% fall in value since the beginning of the year marked the fifth consecutive year the category was the worst performing within the asset class.
Despite funding ratios closing out the year below levels in January, the consultancy did estimate that a rise in both AAA and AA euro-zone bond yields had led to a 0.8% decline in DB fund liabilities.
However, this contrasted with liabilities overall increasing by 3.5% over the course of the year, outstripped by a 4.6% rise in asset value since January 2015.