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Irish pension fund liabilities rise 15%, offsetting 9% asset growth

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Pension funds in Ireland saw their assets rise by 9% on average in the first half of this year on the back of bond price rises, but liability values rose by around 15%, according to consultancy Mercer. 

Sean O’Donovan, head of DB risk at the firm, said: “Global equities saw strong growth over the period.  

“The majority of outperformance can also be attributed to falls in bond yields, which have seen fixed income assets increase in value by more than 10%.”

However, the same market dynamic expanded pension fund liabilities.

Because falls in government bond yields were echoed by corporate bonds – which companies refer to when valuing pension liabilities – pension fund liabilities rose by around 15% in the six months to the end of June, Mercer said.

It said this had more than offset the gains made on scheme assets, with accounting deficits climbing to €7.6bn from €5.4bn.

In 2013, deficits narrowed by €1.8bn.

Mercer said employers and trustees wanted to capitalise on the big recovery in equity markets, but the problem was where to invest these assets, with bond yields now at historic lows.

“More and more clients are looking for a half-way house between equities and long-dated bonds to capture equity gains until such time as bond yields hopefully increase”, O’Donovan said.

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