€15bn loss means Irish pension funds are worth less than in 2005

IRISH PENSION funds have lost €15 billion in the first half of the year and are now worth less than they were at the end of 2005.

Figures for the performance of Irish group-managed pension funds over the first six months of 2008 show that, as a group, they are nursing losses of 14.7 per cent.

A modest recovery in April and May was more than offset by a dramatic sell-off in June.

Pension funds lost 7.8 per cent of their value last month alone.

“Fears of a global recession sent equity markets into free-fall last month,” said Fiona Daly, managing director of Rubicon Investment Consulting. “In fact, all of these funds are now valued at less than they were at the end of 2005.”

The recent slump means Irish pensions have significantly failed to match inflation in recent times.

However, rising bond yields mean that most defined benefit schemes are unlikely to be any worse off now than at the end of the first quarter, according to Michael Curtin, a senior investment consultant at Mercer.

“Bond yields have been rising this year because longer-term inflation expectations have been rising,” he said, noting that the higher bond yield lowers the present value of pension liabilities and improves the funding status of defined benefit schemes.

However, people in defined contribution schemes are fully exposed to the decline in market values. Irish stocks shed almost 15 per cent in the second three months of the year while world stocks lost just 1 per cent.

However, Irish pension funds are considerably overweight in Irish equities – which are concentrated in the troubled banking and property sectors of the economy.

Separate figures published yesterday by Hewitt indicate that over the longer timeframe – 15 years – Irish pension funds continue to grow at a respectable 8.2 per cent.