The looming introduction of a funding reserve will pose a considerable challenge for Irish pension funds and could lower benefits, according to LCP.

Analysing the deficits of 26 of Ireland’s largest employers, the consultancy said the combined shortfall had risen by more than half to €5.8bn by the end of 2014.

It also warned that funding levels had fallen despite combined contributions of nearly €1.3bn over the course of last year, pointing to the continued decline of the benchmark 10-year German Bund as a reason for the worsening situation.

Conor Daly, a partner at LCP’s Dublin office, said the results of the consultancy’s 2015 ‘Accounting for Pensions’ report showed sponsors were under “considerable pressure” when trying to maintain their defined benefit (DB) arrangements.

He added that the pending introduction of the risk reserve, a buffer equating to 10% of scheme liabilities that can be offset by investments in either cash or certain fixed income holdings, would come at a time when companies could “least afford it”.

Daly said the risk reserve was likely to see a “welcome” reduction in the level of risky assets held by the Irish DB sector.

According to the report, 45% of the sample scheme’s assets remained invested in equities, down from 49%.

Drawing on data collated by the Pensions Authority for a 2014 review, LCP said only one-third of the 50 largest Irish schemes had sufficient assets to meet the statutory funding standard.

“This suggests,” the report says, “the introduction of this new requirement may pose considerable additional challenges for trustees and sponsors in the coming years and may inevitably lead to pressure for further benefit curtailments.”

The Pensions Authority’s Brendan Kennedy has repeatedly spoken of his frustration over Irish schemes’ unwillingness to de-risk, and LCP’s report still found some DB schemes holding up to 70% of assets in equities.

The report said the scheme for building materials group Grafton had the highest overall exposure to equities, at 70%, followed by Kerry Group at 63%.

Other DB funds significantly de-risked over the course of the year, such as Ornua.

The company, formerly the Irish Dairy Board, reduced its equity holdings from 83% to 56%, and also saw its funding decrease by 10 percentage points to 72%.