IRELAND - The total pension accounting deficit for Irish-based ISEQ quoted companies was close to €3.5bn by the end of August, hitting pension funds' previous recovery, according to new pension consultant Attain.

In a study entitled accounting for pensions in Ireland, the consultant looks at how the deficits of pensions schemes have evolved since the beginning of the decade and where they currently stand.

Surveying the costs of accounting for pensions in company accounts, the study found since new accounting requirements came into force in 2001 pension fund deficits have fluctuated because of adverse market conditions in 2002 and 2003.

Despite a widening asset-liability gap, funds recovered again so the total deficit in 2007 had more than halved and the overall ISEQ pension balance sheet was in its best position for five years.

Pension funds have seen a deterioration again this year as the average managed fund has fallen by over 15% in the eight months to August 2008, with the total deficit now being close to €3.5bn again.

Attain argued this position could have been worse but for the fact that yields on long-dated AA-rated corporate bonds have risen since the beginning of 2008, "which has helped out on the liability side of the balance sheet."

Since early 2008, the yields on long dated AA-rated corporate bonds have increased mainly because the premium required to compensate for the extra risk on corporate bonds relative to government bonds has widened.

"We estimate that for each 0.1% increase in the yield on corporate bonds, the overall value of pension liabilities of Irish ISEQ quoted companies reduces by around 2% or about €380m in total," said the consultant.

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