Pension deficits soar 15% this year to €5.4bn

PENSION deficits at Irish-listed companies have soared 15% to €5.4 billion since the start of the year.

The combined deficits at three Irish banks account for almost half of this figure, according to Attain Consulting.

The deficit at AIB at the end of June was €1.26bn, and €1.47bn at Bank of Ireland at the end of September. The deficit at the end of June at Irish Life and Permanent was €242m.

Attain estimates the combined pension deficits of firms on the Irish Stock Exchange reached a high of €6bn in February and a low of €3.6bn in May.

The combined deficit of €5.4bn amounts to 15% of the total market capitalisation of these companies.

Director of Attain Consulting, Maurice Whyms said: “At first sight the results might seem surprising as the rise in stock markets has relieved some of the pressure on pension schemes and has led to a partial improvement in the position of Irish pension schemes.”

Attain estimates that the assets in defined benefit pension schemes of Irish quoted companies rose by €2bn, from €12bn at the start of the year, to €14bn by the end of October.

However, liabilities rose from €16.7bn to €19.4bn over the same period, meaning the combined deficit rose from €4.7bn to an estimated €5.4bn.

Mr Whyms said the overall deterioration has come about, however, because in marked contrast to Irish schemes, the position of British pension schemes has deteriorated sharply since the beginning of the year.

“Increases in expected UK inflation have combined with significant reductions in UK corporate bond yields, a key driver of liability values, to drive up UK pension scheme deficits.

“With close to a quarter of pension liabilities on Irish company balance sheets relating to UK subsidiaries, the deterioration in the UK position was bound to have some spillover effect.”

One of the factors driving the volatility of pension deficits is the relatively low level of investment in bonds. “With just over a third of pension assets invested in bonds there is a risk that assets and liabilities move in opposite directions,” he said. “While this can be positive or negative, we are likely to see a movement towards greater risk management and de-risking of pension schemes in the future.”