DB pension deficit soars 50pc to €4.5bn

The combined deficit of defined-benefit pension schemes in companies listed on Ireland’s stockmarket soared to €4.5bn last year – a 50pc increase on the shortfall in 2015.

The widening deficit on Iseq firms was propelled by falling yields on corporate bonds, according to a report published by global consulting group Mercer this morning.
The huge deficit will continue to put defined-benefit schemes squarely in the sights of companies seeking to close the attractive retirement vehicles.

The Mercer report shows that the schemes’ asset returns of between 8pc and 10pc in 2016 were not sufficient to match growing liabilities.
Mercer said that yields in the average defined-benefit scheme fell by 0.75pc last year, increasing liabilities by 16pc.

“Up until recently, low yields have been offset by lower inflation expectations,” said Peter Gray, risk financing specialist at Mercer. “However, the end of 2016 saw inflation expectations rise, inflating liability valuations. Scheme assets have performed well over 2016 but have fallen short of the increase in liabilities, resulting in higher deficits.”
Defined-benefit schemes that have been able to de-risk, for example by investing in matching assets, have been somewhat immunised against the falls but many others cannot afford to lock in low yields and have suffered as a result, said Mercer.

The consulting group said that a recent rise in inflation expectations “could provide a chink of light” for 2017 and beyond.
It said that signs that inflation is expected to return might encourage the European Central Bank to end or reduce its bond-buying programme, possibly helping yields to increase across the eurozone.

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