ISEQ firms face €4.5bn pension deficit

LISTED Irish companies are facing a €4.5 billion pension deficit, according to figures calculated at year’s end.

Bridging the gap will be a huge challenge in 2011 and require both companies and pension scheme trustees to make tough funding, benefit and investment decisions, a new report said.

At the 2010 year-end the funding status for ISEQ companies was 77%, a figure broadly unchanged from the end of 2009 while pension liabilities stood at 40% of the total market capitalisation of the firms involved.

Mercer said the pension costs to those companies in 2011 “is unlikely to be materially different from 2010”.

The company, which specialises in pensions and investments, said the funded status (the ratio of assets to liabilities) of pension schemes operated by publicly-quoted Irish companies equates to an estimated aggregate deficit at the end of 2010 of €4.5bn (€4.4bn 2009).

Patrick McKenna of Mercer said strong returns of 11% on investments were a welcome feature of the 12 months just gone but added poor corporate bond yields resulted in the slight increase in pension schemes’ liabilities during 2010.

With significant changes to pension regulations looming, the Pensions Board is likely to renew the demand that companies submit recovery plans for those schemes that are in deficit.

“While these changes are expected to give companies and trustees additional options, they may also introduce additional risks that will have to be considered by stakeholders,” McKenna said.

He warned “difficult decisions relating to benefit provision, funding and investment strategy will have to be taken in order to construct recovery plans that are both equitable for members and sustainable into the future.”

A study published by Aviva last September showed a €20.2bn annual shortfall in the amount people are paying into pensions to meet their retirement needs.

It amounted to an average €9,100 a year for every person expecting to retire between next year and 2051.

Middle-income people are worst affected, with an average pensions “gap” of 19% of disposable income.

The per capita pension gap in Ireland among the 12 countries surveyed, is the third most severe — behind Britain and Germany, the survey found.