Pension funds fall almost 2.5% despite late rally

THE value of Irish pension funds fell by 2.45% in 2011 despite a strong late rally in December.

The Aon Hewitt Managed Fund Index, an indicator of the performance of the average Irish pension fund, increased by 3.21% in December.

However it fell by 2.45% overall in the year, affected by considerable volatility in investor sentiment, particularly for the eurozone area.

Equity markets rallied into year end, although the eurozone area failed to post gains as the negative sentiment stemming from the debt crisis continues to weigh heavily on the region.

North American equities benefited most from this rally with a rise of 4.37% in dollar terms.

“A more positive outlook for the US economy in 2012 helped North American equities to gain through year end” said Betty O’ Reilly, Senior Investment Consultant at Aon Hewitt.

She added: “Gains for Euro based investors were further accentuated by currency appreciation against a weakening euro.”

Core and peripheral eurozone bond yields fell significantly over the month, as the core markets continued to benefit from ‘safe haven’ status and the peripherals gained from better than expected debt sales and moves towards tighter fiscal measures in Spain and Italy.

“Irish defined benefit pension scheme funding levels fell slightly over the month as the rise in asset values generated by the recovery in equities was offset by a fall in core eurozone bond yields and consequently a rise in pension scheme liabilities” Ms O’ Reilly added..

Longer term, the Aon Hewitt Index is showing a positive return of 9.6% per annum over 3 years.

Ms O’reilly said: “While the three year figure is encouraging, it is distorted somewhat by dropping out the very poor returns of 2008. The five year return on the index is down 3.3% on an annualised basis while 10 year returns are 2% per annum.”

Aon Hewitt will issue the full Multi Asset Fund Survey later today.