Pension deficits double to €8.5bn

Deficits in the Defined Benefit (DB) schemes of the largest Irish private and public sector bodies more than doubled between January and August of this year as the pension levy and falling bond yields took their toll.

The combined deficits of 16 of the largest Irish-quoted companies and 13 state or semi-state companies’ schemes grew from €4bn in December 2013 to more than €8.5bn at the end of August, according to an analysis published yesterday by consultants LCP Ireland.

The report finds that falling bond yields coupled with the government pension levy have driven the rapid increases in deficit levels and wiped out any benefit derived from a gain of more than 12% in global equity markets.

Commenting on the findings, LCP partner, Conor Daly, described the impact on companies’ balance sheets as “devastating”.

“It is clear from the 2014 report that defined benefit pension schemes remain under considerable pressure. While the global recovery in equity markets has provided some respite, the significant fall in bond yields during 2014 will have a devastating impact on the balance sheets in many companies’ 2014 accounts.

“Having seen many difficult benefit reductions and funding plans being implemented over the last 24 months with pain being taken on all sides, it would seem that defined benefit schemes cannot catch a break,” Mr Daly said.

The pension levy which was introduced in 2011 at a rate of 0.6% — and increased in Budget 2014 by an additional 0.15% — is due to be abolished at the end of 2015 having been cut back to 0.15% in the latest budget for the coming year.

The levy has already siphoned more than €2.3bn from private sector pensions since its introduction and the resulted in further increases in funding deficits. According to the report, just €1bn — compared to the €2.3bn removed — has been contributed to pension schemes by the 29 companies analysed.

The companies analysed paid substantial contributions of over €1.67bn to their pension schemes in 2013 but just one, RTÉ, had sufficient assets to meet its accounting liabilities while the average funding level for schemes analysed rose from 81% in 2012 to 85% in 2013.

Of the firms included in the report, Bank of Ireland (€841m) had the largest 2013 deficit, followed by Smurfit Kappa (€713m); Diageo (€638m); CIÈ (€418m) and CRH (€410m). Many schemes have disappeared through wind-up, while benefits have been cut in others including Grafton Group which implemented pensionable pay freezes and An Post, which made changes in retirement.