Pension plans 'under-funded by €5bn'
Tom Murphy of Mercer Human Resource Consulting said half of the €60bn sunk into employee pension plans are under-funded.
If the figure is between 15% and 20% for those funds then the shortfall down the line is a massive €5bn, he said.
That can be improved on by achieving better returns, increased funding or by cutting employee benefits.
Employers have already upped their contributions in many instances so the pressure is mounting on long term benefits unless the investment situation improves, he said.
Following the downturn in the stock market, risk free bonds, are much more in demand.
They are costing more to buy while the risk free return is continuing to fall, he said.
As a result pension fund performance in Ireland will have sunk deeper into trouble.
Firms face another problem regarding pensions. While most managed funds delivered growth of 10% plus in 2004, the cost of funding pensions rose by more than that amount adding to the funding pressures for increasing numbers of pensions.
It also emerged from the Mercer Investment seminar in Dublin yesterday that the majority of Irish fund managers failed to beat the market indices.
According to Tom Murphy the problem was that it was medium sized firms that tended to give the best returns last year while Irish pension funds tended to go for the blue chip stocks.
As a result last year saw the pensions crisis deepen, those attending the pensions seminar hosted by Mercer were told.
"The effect of changing bond yields is often overlooked by pension commentators but it will become very clear in the next few months as companies are due to show even greater pension deficits on their balance sheets at the end of the year," he said.
Delegates were also told of the difficulty that the majority of active fund managers had throughout 2004 in beating a passively managed index fund.
"If you look at what has propelled the equity markets, it has very much been a story of the smaller and mid-capitalisation stocks that have exceeded the performance of the more established and larger cap blue chip stocks that are widely held across the fund management community," Mr Murphy said.
Alternative investments to beat the falling returns are available. But they are complex and difficult to apply to the standard pension product, he said.
