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Strong equities bolster Irish pension scheme funding

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Irish pension schemes saw their funding positions improve over the course of last month as equities produced strong gains, according to consultancy data. 

LCP said the funding level of a typical defined benefit (DB) scheme in Ireland had increased by about 1.4% in May, as assets grew faster than liabilities. 

While liabilities increased by 1.2% in the month for sample DB schemes in LCP’s study, assets grew over the same period by 2.6%, the firm said. 

Meanwhile, Aon Hewitt said its Managed Fund Index – which includes traditional Irish pension managed funds – increased by 2.72% in May, while the index has returned 6.05% since the start of the year. 

Cathal Fehily, investment consultant at Aon Hewitt, said: “Irish defined benefit pension schemes will have seen their liabilities rise again in May given the fall in core euro-zone government bond yields.”

But strong asset performance in the month should compensate for this increase in liabilities, Fehily said, with schemes generally seeing a small improvement in their funding levels.

LCP said the best pension fund performers in the month were defined contribution (DC) schemes with a high allocation to growth assets.

Pension fund investments in global equities increased by almost 4% last month, it reported.

Long-dated euro-zone bonds with AAA ratings also rose in price in May, it said, with bond yields falling for the fifth month in a row.

Aon Hewitt said global equity markets rose in May, with the FTSE All World Index up 3.9% in euro terms. 

Japan was the best performing region in euro terms, while the FTSE Japan Index returned 5.8%.

Fehily said equity markets strengthened on the expectation the European Central Bank would loosen monetary policy further following its meeting on the 5 June, as it tried to spur higher inflation in the region. 

“Euro-zone government bonds also benefited from this expected policy, as government bond yields moved even lower over the month,” he added.

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