Pensions 'hole' at top firms of €24bn last year

THE PENSIONS “hole” at Ireland’s top indigenous companies was €24 billion at the end of last year, according to a new study published today, €2 billion better than a year previously.

The report by LCP Ireland says the average deficit in defined benefit pension schemes amounts to 17 per cent of the companies’ market capitalisation. However, the situation is dramatically worse in the case of the banks, with the €400 million reported deficit at AIB exceeding its €324 million market cap.

Pension liabilities at AIB are more than 10 times the market cap at €3.9 billion. The situation at Bank of Ireland and Irish Life Permanent is similar though less dramatic. A notable exception is Anglo Irish bank, one of only three funds examined that are fully funded. The others are the NTMA and RTÉ.

LCP examined the pensions funding position of the 30 largest publicly-listed Irish companies as well as the 11 semi-State enterprises. “The report shows that the scale of pension liabilities is a significant challenge for many of Ireland’s top companies,” said Conor Daly, partner at LCP Ireland.

While pension funds at the companies under review were engaged in addressing their deficits, the report find that the focus of derisking strategies is on benefit reductions and increased contributions.

“Despite significant market volatility, companies continue to hold a high proportion of their assets in equities,” says LCP partner Roma Burke.

The equity allocation of the Irish schemes examined fell just one percentage point in 2010 to 58 per cent, compared to 43 per cent in the UK, down three percentage points over the year. The report says that pension funds in over half of OECD countries hold 30 per cent or less in equities, while bonds continue to be the dominant asset class accounting for on average 50 per cent of total assets.

“The very existence of defined benefit as a form of employee pension provision is under threat as sponsors become more resistant to demands for increased contributions,” said Mr Daly. “The recent introduction of the pension levy has served to further erode confidence.

“We expect very few defined benefit schemes will exist in their current form in five years time.”