Irish pension funds' deficit increases by 66%

THE HOLE in pension funds at listed Irish companies has grown by two-thirds this year, according to figures published today.

At the end of last year, Irish-based companies listed on the Irish Stock Exchange's Iseq had an aggregate deficit of €2.1 billion in their pension funds, the lowest since 2002.

However, at the end of August, that had grown by 66 per cent to almost €3.5 billion, according to Attain Consulting.

The figures relate to the 27 companies on the Iseq offering employees defined benefit pensions, where the pension is guaranteed by the company and is based on length of service.

"By the end of 2007, the 'Iseq pension balance sheet' had recovered to its best position in five years with a deficit of €2.1 billion," said Maurice Whyms, director of Attain Consulting. "But this year has seen a sharp deterioration."

He said the decline was not surprising given the 15 per cent decline in the return of the average managed Irish pension fund since the start of the year.

The sharp increase in pension fund deficits highlighted the impact defined benefit schemes are having on the balance sheets of companies already under pressure from the economic downturn and the global credit crunch, Mr Whyms, a council member of the Irish Association of Pension Funds and former chief executive of pensions consultants Mercer Ireland, said.

The funding standard laid down by the regulator, the Pensions Board, dictates that a fund must be able to meet its obligations if it were to be wound up. It also determines that any pension fund surplus or deficit must be recorded on a company's balance sheet.

As long-term investments designed to provide retirement income for possibly young employees many years down the line, pension funds are largely held in equities.

Generally, about 80 per cent of a fund will be invested in stock markets. While those markets are more volatile than other pension investments over time - and have suffered two significant downturns in the past decade - they have historically provided stronger average returns than are available elsewhere.