ISEQ pension deficit estimated at €7.8bn
IRELAND - The aggregate deficit in pension schemes belonging to companies on the Irish Stock Exchange (ISEQ) increased to €7.6bn, according to latest estimates by Mercer.
The ISEQ index fell 65% in 2008 and although the market value of Irish companies declined pension liabilities remained steady, so at the end of the year total pension liabilities were valued at 61% of the ISEQ companies’ total market capitalisation.
This is a significant increase from the 21% reported in 2007 so Mercer claimed this is likely to make pension plan obligations one of the main financial risks for ISEQ companies going forward.
In addition, the research from the consulting company indicated the funded status of schemes backed by publicly-quoted Irish companies declined from 90% in 2007 to 61%, equating to estimated losses of €5.7bn over the year.
As a result of this decline, Mercer claimed the estimated aggregate deficit of these pension schemes had increased by almost €6bn from €1.9bn in 2007 to €7.6bn a year later.
David O’Sullivan, from Mercer’s Financial Strategy Group, said: “It is generally accepted that the vast majority of plans now fail to meet the minimum statutory test for Irish pension schemes. While it is difficult to set a reasonable estimate for the absolute level of contributions that will be required in 2009 and beyond, companies are likely to have to make significant additional contributions to correct this situation.”
The minimum funding standard is the statutory basis which is used to calculate the position of a scheme in wind-up and sets the minimum level of employer contributions that need to be paid to a DB scheme.
O’Sullivan warned: “This is, of course, exacerbated by the fact that many companies are experiencing difficulties themselves and may not be able to afford the contributions required.”
Mercer also pointed out as the majority of Irish public companies have their financial year-endsset for December, the decline in the funded status will be reflected in the corporate balance sheets, and this could in turn impact on capital expenditure decisions, loan covenants and credit rating decisions.
O’Sullivan said: “The combined impact of the deterioration in funded status and the fall in value of Irish companies should prompt pension plan sponsors and trustees to evaluate the strategies of their pension plans.
“This is particularly important in the Irish legislative environment where there is no obligation on an employer to meet the plan deficit on wind-up,” he added.
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