IRELAND – Underfunded defined benefit (DB) schemes in Ireland have seen their deficits decrease on back of nearly double-digit equity returns, according to LCP.
Calculating the impact of global equity growth on its model DB fund over the course of the first quarter, the consultancy said that the mature fund, with a mixture of active, deferreds and pensioners as members, would have seen its funding position improve by 3.5%.
Examining equity market returns, fellow consultancy Aon Hewitt noted that euro-zone shares were "a notable laggard" over the course of the quarter, only returning 2.2%, compared to the 9.8% seen by the FTSE World Index and LCP's estimate of global equity excluding the single currency area growing by 10.7%.
Denis Lyons, senior investment consultant at Aon Hewitt said: "For Irish defined benefit schemes, strong equity returns over the first quarter of the year will have benefited funding levels, and as bond yields have increased slightly since the beginning of the year, schemes should have seen some improvement in funding levels over the quarter."
For its model pension fund, LCP estimated a quarterly return of 4.5%, helped largely by its assumed global equity exposure.
"Liabilities increased by just 1.0% year to date as AAA bond yields decreased slightly during the quarter," the consultancy added in its investment briefing for March.
It said further: "Over the last 12 months the funding level has increased by approximately 5.7% due to the asset values increasing more than the liabilities."
The consultancy noted that its hypothetical medium risk portfolio had posted the best performance over the last year due to its diversified nature, although its bond holdings would have resulted in a slight negative return over the course of the first three months of 2013.
The steadily improving funding positions will be welcome news to DB funds in Ireland, as they have until the summer to file funding proposals with the Pensions Board.
When the regulator first reinstated its funding standard, it estimated that eight out of ten funds were in deficit. LCP partner Conor Daly recently warned that unless changes to the funding standard were introduced, it would be "game over" for the country's DB funds.