IRELAND - The combined defined benefit (DB) pension deficits of Irish quoted companies increased by almost 15% between January and October to €5.4bn, according to research by Attain Consulting.

In its report entitled 'Accounting for Pensions in Ireland', Attain Consulting estimated the assets of DB schemes rose in value by €2bn over the 10-month period to reach €14bn at the end of October, as world equity markets improved by more than 20%.

However, it pointed out that the liabilities - on an accounting basis - rose from €16.7bn to €19.4bn, bringing the combined deficit up from €4.7bn to €5.4bn. This is equivalent to around 15% of the total market capitalisation of the companies involved.

It attributed this to a number of factors, such as a fall in corporate bond yields, although it claimed the main factor is the deterioration in the accounting position of UK, rather than Irish, pension schemes because of higher expected inflation and the impact of falling bond yields. 

Maurice Whyms, director of Attain Consulting, said: "With close to a quarter of pension liabilities on Irish company balance sheets relating to UK subsidiaries, the deterioration in the UK position was bound to have some spill over effect."

The research showed the average allocation of Irish listed companies' DB schemes is 51% in equity, 35% in bonds, 9% in property and the remainder in cash.

Attain also suggested one of the factors driving the volatility of pension deficits is the relatively low level of investment in bonds.

Yet while UK schemes have started 'de-risking', Irish companies are concerned about the impact on pension expenses and profit. For example, if firms halved exposure to equities and property in favour of government bonds, the average increase in pension costs would be 37%, while a complete move to de-risking - a 100% reduction - would increase costs by 75%.

Despite this, Attain suggested that an increased number of DB schemes closing to new and/or existing members, as well as requirements by the Pensions Board for schemes to consider risk when developing funding plans, could drive the trend in Ireland.

 "We are likely to see a movement towards greater risk management and de-risking of pension schemes in the future," added Whyms.

Meanwhile, the latest monthly figures from Rubicon Investment Consulting and Hewitt Associates showed there had been a return to positive territory for Irish managed funds following a decline in October.

Rubicon's monthly research of 10 pensions managed funds showed they generated an average return of 1.3% over the month, and delivered an average return of 16.5% over 11 months in 2009. And over the 12 months to the end of November the positive performance resulted in a return of 12.9%.

Eagle Star/Zurich produced the best performance in November of 1.7%, while Irish Life Investment Managers reported the lowest return of 0.9%. Over the 11-month period Merrion Investment Managers generated the best investment return of 23.7%, while AIB Investment Managers was left trailing with a 9% return. These two managers also remained at the top and bottom of the leader board for the one-year timeline with Merrion returning 19.3% and AIB 5.4%.

Figures from Hewitt Associates also suggested Irish managed pension funds returned a positive 1.1% in November, with a return of 11.9% for the 12 months to 30 November. This follows a small setback in October when the Hewitt Managed Fund Index recorded a return of -2.8% - the first negative return for seven months. And for the year-to-date the average return was 15.5%.

Evelyn Rider, director of investment consulting at Hewitt Associates, said: "At this stage, 2009 looks certain to be a double digit positive return, clawing back some of the losses suffered in 2008. But there is still some way to go to recover to the positions funds were at in the middle of 2007."

She also warned while equity markets rose in November, reflecting investor confidence in the economic recovery, employment and consumer spending figures remained weak.

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