Having declined for the first time in eight months during October, Irish pension funds returned to positive territory during November, returning 1.3% on average and 16.5% year-to-date. The best performing managed fund in November was that of Eagle Star/Zurich Life, which returned 1.7%. Irish Life Investment Managers propped up the league table with a 0.9% return for the month. The 10-year average return is 0.5%. Meanwhile, on Tuesday, it was also reported that the pension deficits of Irish quoted companies have risen almost 15% to €5.4 billion €5.4 billion in 2009.

Returns are positive for the year to date, with the average fund having gained 16.5% over this period. In the eleven months to the end of November, returns ranged from 23.7% (Merrion Investment Managers) to 9.0% (AIB Investment Managers), representing a difference of 14.7% between the best and worst performing managers so far this year. Over the past twelve months the average fund delivered 12.9%, with returns ranging from 19.3% (Merrion Investment Managers) to 5.4% (AIB Investment Managers).

Fiona Daly of Rubicon Investment Consulting commented: "The average managed fund return has been a very disappointing -8.6% per annum over the past three years. However, the five year returns to the end of November are positive on average, delivering a mean return of 0.7% per annum over this period. Irish group pension managed fund returns over the past ten years have been a disappointing 0.5% per annum on average, well below the Irish inflation rate of 2.9% per annum over the same time horizon. Indeed, none of the managed funds surveyed outperformed inflation over this period, while four of the ten funds failed to deliver positive returns over 10 years."

Pension deficits

Figures released on Tueday by Attain Consulting show that the combined pension deficits of Irish quoted companies has risen almost 15% to €5.4 billion from €4.7 billion at the start of the year. This is despite a recovery in asset values during the year to the end October.

Attain estimates that the assets in defined benefit pension schemes of Irish quoted companies rose by €2 billion, from €12 billion at the start of the year to €14 billion by the end of October. However, the liabilities measured on the basis used to account for pensions in company financial statements, rose from €16.7 billion to €19.4 billion over the same period. This meant that the combined deficit rose from €4.7 billion to an estimated €5.4 billion.

“At first sight the results might seem surprising as the rise in stock markets has relieved some of the pressure on pension schemes and has led to a partial improvement in the position of Irish pension schemes,” commented Maurice Whyms, director of Attain Consulting and a senior pensions actuary.

He said that the overall deterioration has come about however because in marked contrast to Irish schemes, the position of UK pension schemes has deteriorated sharply since the beginning of the year impacting on the balance sheets of those companies with UK subsidiaries. Increases in expected UK inflation have combined with significant reductions in UK corporate bond yields, a key driver of liability values, to drive up UK pension scheme deficits. “With close to a quarter of pension liabilities on Irish company balance sheets relating to UK subsidiaries, the deterioration in the UK position was bound to have some spill over effect,” said Whyms.

In its report entitled ‘Accounting for Pensions in Ireland,’ Attain estimates that the combined pension deficit reached a high of €6.0 billion in February and a low of €3.6 billion in May. To put the pension deficit in perspective, Whyms pointed out that the combined deficit of €5.4 billion amounts to 15% of the total market capitalisation of the companies involved.

“One of the factors driving the volatility of pension deficits is the relatively low level of investment in bonds. With just over a third of pension assets invested in bonds there is a risk that assets and liabilities move in opposite directions. While this can be positive or negative, we are likely to see a movement towards greater risk management and de-risking of pension schemes in the future,” he said.