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The average funding level of Ireland’s largest pension schemes has hardly budged since 2010 despite company contributions of nearly €10bn, according to a consultancy.

Irish schemes were on average 85% funded according to their most recent annual reports, one percentage point lower than in 2010, LCP said in a new report.

The estimated aggregate deficit stood at €3.6bn as at 31 December 2016, up from €2.6bn a year earlier. The consultancy attributed the low funding levels to the sharp and prolonged fall in euro-zone bond yields in the period to 30 September 2016.

LCP said it estimated that the combined deficit for the companies analysed had fallen to €3.3bn by 31 October this year.

Deficits in 2016 would have been higher had some individual companies not carried out liability management exercises. For example, Bord na Mona cut accrued benefits for existing members and paid significant one-off contributions, while Kerry Group closed its Irish pension schemes to future accrual and carried out a transfer value exercise. 

Companies paid more than €1.07bn into their pension schemes during 2016, after contributions of €1.16bn in 2015 and €1.27bn in 2014. In total, they had paid €9.6bn into schemes between 2010 and 2016.

LCP Ireland accounting screen grab

Source: LCP Ireland

Total funded pension scheme liabilities, expressed as a proportion of market capitalisation, increased over the year from 22% in 2015 to 25% in 2016. Bank of Ireland’s was the highest, at 102%.

There was evidence of some divergence in the assumptions used by companies in their valuation exercise, “as different interpretations are taken of the appropriate market yield at the valuation date,” said LCP.

Irish schemes continued to have a relatively high allocation to equities. The figure fell to 41% over the course of 2016, but that compared with 26% for the defined benefit schemes of FTSE 100 companies.

The average allocation to bonds remained at 36% while the allocation to other asset classes – including property, cash, and hedge funds – increased from 21% to 23%.

LCP’s report examined the defined benefit pension schemes of 26 of the largest Irish companies, comprising 11 of the largest Irish quoted companies by market capitalisation; 11 semi-state/state-controlled companies with defined benefit pension schemes, and four companies listed on other exchanges that operate significant defined benefit pension schemes in Ireland.

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Readers' comments (1)

  • If you pour in a considerable amount of money and funding levels remain unchanged or get worse there is only one conclusion possible: your calculation method is faulty. Reality should be more important than model assumptions.

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