Irish pension deficits account for 17% of company market cap – LCP
IRELAND - The average pension deficit at Ireland's leading companies amounted to 17% of market cap, according to a new survey conducted by LCP.
The consultancy also found that Irish schemes had failed to take steps to de-risk, with the average equity exposure almost unchanged compared with 2009 and criticised the "frustrating" speed of defined benefit (DB) pension reform in the country.
In its 2011 Pensions Accounting Briefing, LCP noted that the average deficits compared with company market cap had fallen slightly, by 1 percentage point to 17% over the previous year, but that the 32 companies inspected were still burdened by their pension obligations.
It said: "Significant deficits combined with considerable liabilities suggest pension schemes may now restrict companies' future growth and investment plans.
"In particular, corporate transactions may be affected where the size of a pension scheme is significant when compared with a company's market capitalisation."
Liabilities as a percentage of market cap were particularly high among financial institutions, with Allied Irish Bank's (AIB) €3.9bn in liabilities accounting for 1,215% of its €324m market cap.
The Bank of Ireland (BoI) - like AIB, largely state-owned - fared significantly better, with its higher market cap of nearly €2bn at the end of 2010 meaning its pension deficit was only 229% of its value, while Irish Life & Permanent's (IL&P) liabilities were 448% of market cap.
A report by Citibank in August found that UK banks were similarly dwarfed by their pension liabilities, with Lloyds Banking Group's commitments rising to 115% of market value.
However, when comparing market value with deficit figures, all three Irish institutions fared better, with AIB's deficit still exceeding its value at 123%, while IL&P's deficit was half of market cap, and that of BoI was only €424m, or 21%.
The consultancy said uncertainty in the DB market was also frustrating, due to repeated delays in publishing details of a new DB framework for the market, first proposed in the National Pensions Framework last year.
Conor Daly, partner at LCP, warned that the continued existence of DB was under threat, as sponsors resisted demands for increased contributions.
"The recent introduction of the Pension Levy has served to further erode confidence," he added. "We would expect that very few defined benefit schemes will exist in their current form in five years' time."
LCP also noted Irish pension funds' lack of diversification, which it said "contrasts starkly with our European neighbours".
While the average scheme at the end of 2009 invested 59% in the stock market, this had only fallen to 58% by the following year.
The National Treasury Management Agency's pension fund was the second-largest holder of equities, at 78% of the total portfolio, alongside outsourcing business Icon, with a 90% exposure to the stock market.
However, both schemes were comparatively small in size - at €44m and €12m, respectively - with liabilities almost evenly matching those assets.