With underfunding so prevalent on the Irish pensions scene, pension funds can take some comfort from their performance over the past year. The average managed Irish fund returned around 21% last year. According to Mercer this has been driven by “exceptional returns from global equity markets”.
Equity markets returned over 20% last year, with a return of 5.7% in the last quarter. Japan was the strongest performing market over the year returning 44% with a particularly energetic 14% gain in Q4. Irish equities which on average account for 18% of pension fund portfolios returned 21.7%, after they had led global markets for a number of years. The US market was disappointing, returning just 0.25% over the year.
Meanwhile, long bonds returned 13.9%..
Tom Geraghty is head of investment consulting at Mercer’s office in Dublin. He believes that trustees are finding it difficult to make decisions because they feel pulled in two different directions. “A lot of trustees are still dealing with the funding standard and solvency issues,” he notes. “Some funds believe that in order to address their deficit and make up lost ground they should maintain their allocation to equities. However, they also feel drawn by the demands of FRS17 and thus feel they should allocate more to bonds to reduce volatility in the balance sheet and profit and loss account.”
He adds: “But a lot of trustees are not convinced that they should be buying bonds right now because of the expectation that interest rates may be about to rise.”
So what is the prediction for the coming year? “We may see a slight increase in allocations to bonds and a slight reduction in allocations to equities,” Geraghty says. “By the end of 2006 the average asset allocation among pension funds will be 70% equities, 20% bonds and 10% divided between real estate and cash.”

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