Irish pension coverage falls since 2009, returns weak in 2016
In Q4 2015, just under half (47%) of all Irish workers aged between 20 and 69 years had a pension (occupational pension, personal pension or both) while returns on average have been flat in 2016. The highest rate of coverage is of public sector workers.
The CSO reported last week that occupational pension coverage fell from 54% in the first quarter of 2008 and Finfacts reported this year that pension coverage in the private sector is among the worst in the developed world.
The Aon Hewitt Managed Fund Index, an index representing the performance of traditional Irish pension managed funds, increased by 2.6% in May, after declining by 2.3% over first 4 months of the year mainly due to poor equity market returns. Meanwhile, Rubicon Investment Consulting reported that Irish pension funds gained 2.7% on average during May, with strong performances from all of the main managed funds. Aviva Investors, Merrion Investment Managers and Zurich Life shared top spot this month with returns of 3.0%, while New Ireland propped up the league table with 1.6% gain.
Rubicon Investment Consulting says that 2016 has been a disappointing year so far, however, with pension funds down 0.7% on average over the first five months. Returns for the year to date ranged from 3.9% (Setanta Asset Management) to -4.3% (Merrion Investment Managers). Over the past twelve months the average fund return was a disappointing -4.4%. Setanta Asset Management top the table over the past year with a return of 0.2%, while Merrion Investment Managers produced the lowest returns at -7.3%.
The average managed fund return has been a strong 10.2% per annum over the past three years. The five-year average return is a healthy 10.2% per annum. Irish group pension managed fund returns over the past ten years have been 4.7% per annum on average.
Global equity markets strengthened in general over the month of May. The FTSE All World Index increased by 3.1% in euro terms. Oil markets rallied over the month, with the price of Brent Crude Oil increasing by $2 a barrel, to $48.
"Global equities continued to improve over the month of May, driven by rising oil prices and positive growth data from both the US and China. This follows a fairly flat April and volatile first quarter, so we would continue to encourage diversification within the pension scheme growth portfolio, reducing the reliance on equities as the main return driver in the current environment," commented Nicholas Hatherley, investment consultant at Aon Hewitt.
Core Eurozone bond yields fell over the month. The German 10 year bond yield finished at 0.14%, half of its 30 April level. The French 10 year bond yield also decreased by 9 bps to 0.48%. Peripheral Eurozone government bond yields generally fell by around 20 bps, although Portugal's was largely unchanged.
May was a positive month in investment markets with both equities and bonds delivering strong returns. Irish defined benefit pension schemes' liabilities are also likely to have increased, however, as core Eurozone bonds yields again fell (although not to the extent seen at the start of the year). While funding levels are likely to have generally improved over May, the impact will vary from scheme to scheme depending on investment strategy and liability profile. Schemes that have de-risking strategies in place may see some opportunities to lock in funding level improvements. Looking forward to June, the UK Referendum on EU membership is very likely to increase short-term market volatility, regardless of the outcome. Whilst we are not generally seeing clients taking short-term tactical positions because of this, we will be keeping the longer-term impact on European investment markets under close scrutiny.
The CSO reported that the key economic sectors with the largest falls in pension coverage since 2009 were the Transportation and storage (from 55% to 43%), Professional, scientific and technical activities (from 62% to 50%) and Construction (from 44% to 34%) sectors. The highest rates of pension coverage were in the Public administration and defence; compulsory social security (89%), Financial, insurance and real estate activities (75%) and Education (73%) sectors.
Workers whose occupation was classified as Managers, directors and senior officials had the largest fall (from 64% to 53%) in coverage rate among occupational groups.
Self-employed (30%) — compared to employees (50%); Part-time workers (22%) — compared to full-time workers (55%); workers employed in the Accommodation and food service activities sector (13%) — compared to workers employed in the Public administration and defence; compulsory social security sector (89%); Workers whose occupation was classified as Sales and customer service (18%) — compared to workers whose occupation is classified as Professionals (75%).