IRELAND - Irish pension funds have seen returns of more than 7% in the first quarter of 2011 on back of a rallying stock market, according to Aon Hewitt and Rubicon Investment Consulting.

Additionally, rival consultancy LCP estimated that the first three months of the year had seen funding ratios among Irish defined benefit (DB) schemes increase by 3.5%, with assets rising faster than fund liabilities.

Deborah Reidy, senior investment consultant at Aon Hewitt, said the equity rally had seen stock markets rise by 10% in the first quarter, but was unsure if the trend would continue.

"Positive developments in the euro-zone region contributed to the market rally as EU ministers moved to seal a restructuring of Greek debt and bolster the euro-zone rescue fund up to €700bn," she said.

"But uncertainty about the strength of the global economic recovery lingers, keeping us cautious on the markets ability to continue this rally into Q2."

Reidy added that while funding levels had strengthened over the same period due to the equity rally, depressed sovereign bond yields remained problematic.

"With bond yields in core euro-zone countries, most notably Germany, remaining at record low levels, liability values have remained high for schemes," she said.

According to LCP, funding levels continued their gradual climb upwards following a drop in June triggered by falling German bund yields and asset values decreasing due to market volatility.

"The funding level began to improve in September and has steadily increased since then and is now back at a 99% funding level," the consultancy estimated in its quarterly investment summary, calculating that, despite the recovery, funding was still down by 1% year on year.

Aon Hewitt and Rubicon, meanwhile, estimated that the average Irish managed pension fund returned between 7.5% and 7.7% over the quarter, with Rubicon estimating positive growth over a one month - as well as one year and three year - average.

Nonetheless, the 10-year average of 2% still underperformed inflation by 0.1% percentage points, with fewer than half of the funds surveyed by the consultancy able to outperform inflation over the last decade.