Irish pension funds delivered another positive performance during May, for the third month in a row.

Over the month, the average fund delivered a positive return of 2.3%. Merrion Investment Managers was the best performing manager during May, with a return of 3.5%. Bank of Ireland Asset Management, Eagle Star and Standard Life Investments all propped up the league table with returns of 1.6%.

Over the first five months of 2009, returns are also positive with the average fund having returned 5.3% over this period. In the five months to the end of May, returns ranged from 11.0% (Merrion Investment Managers) to 0.8% (AIB Investment Managers), representing a difference of 10.2% between the best and worst performing managers so far this year.

Over the past twelve months, the average fund returned -25.7%, with returns ranging from -21.3% (Eagle Star and Canada Life/Setanta) to -30.9% (Aviva Investors).

Fiona Daly, Managing Director, Rubicon Investment Consulting comments: "The average managed fund return has been an extremely disappointing -9.2% per annum over the past three years. The five year returns to the end of May are also negative, with the average managed fund delivering a return of -0.3% per annum over this period. Irish group pension managed fund returns over the past ten years have been a disappointing 0.2% per annum on average, well below the Irish inflation rate of 3.3% per annum over the same time horizon.

Indeed, none of the managers surveyed outperformed inflation over this period, with just half of the fund managers delivering positive returns."

Returns for all managers over all periods for the past 20+ years can be found here.

Noel Collins, Senior Investment Consultant with Mercer, commented earlier this week, that the financial position of Irish pension schemes has improved substantially over the last two months due to a combination of rising stock markets and favourable movements in the discount rates used to value pension liabilities: “In total, the funding position of pension schemes is likely to have improved by between €8 - €10 billion since the middle of March. There has been a substantial recovery in Global and European stock markets, which have rallied over 25% from the low levels earlier this year.”

Markets have been boosted by initial signs of the much talked about "green shoots" of recovery, and the decisive actions on interest rates and stimulus packages by governments and central banks. “This improved sentiment has helped, as has the recent results of the banking stress tests in the US,” said Collins. At the same time, long-term interest rates have moved upwards, because markets now see a possibility of inflation returning to the main economies over the next few years.

However, Collins warns that recent upward movements need to be kept in context: “The recent good experience will have reduced pension deficits by a factor of approximately one third, but significant deficit positions remain and will need to be tackled, regardless of future investment returns. Equity markets had fallen to extremely low levels, hence some bounce back was always to be expected. It remains to be seen whether the improvements are sustained into the second half of this year.”

He said the key cost drivers for defined benefit pension schemes are increasing life expectancy and low interest rates, and this will continue to be the case. To provide a more solid financial footing for the future, most schemes require a thorough review of benefit and contribution levels, as well as continuing to address the risk levels in their portfolios. “Market rallies such as this provide an opportunity for schemes to consider a process of de-risking their portfolios,” Collins said,

Also commenting on the area of governance, Collins stressed the need for trustees to allocate more time to strategic rather than operational issues and recommended that trustees should enhance their internal governance arrangements. “The magnitude and speed of these recent market developments serve to highlight the need for Trustee groups to be closer to their strategic decisions and to invest the time and resources in managing these decisions,” he said.