Much-feared pensions time bomb is now exploding for 600,000 workers
Published 17/11/2016 | 02:30
The deficits in the pension funds of the State's largest companies and semi-states have ballooned, raising fears that far more schemes are to close.
Members of schemes were warned they may lose out on expected pension promises.
Experts say this means the much-feared pensions time bomb is now exploding for workers who are not in the public sector. More than 600,000 people are active, deferred or pensioner members of defined benefit schemes.
New research from consultants LCP Ireland shows that the combined deficits more than doubled from €2.6bn last year, to close to €7bn so far this year.
The research is for defined benefit schemes, which are struggling to keep promises to pay a certain level of pension based on years of service and final salary.
A deficit means the scheme does not have enough funds to pay members their benefit entitlements. LCP looked at 11 of the largest quoted companies, 11 semi-states, and four others listed on stock exchanges outside Ireland.
Combined deficits rose by 160pc. This comes despite large numbers of schemes restructuring by cutting the benefits, or paying in more contributions.
The deficits shot up despite positive returns from equity markets this year.
LCP partner Conor Daly warned that firms that signed up to funding proposals which had been approved by the Pensions Authority could see these going off track this year, and may require renegotiation with scheme trustees and approval by the Pensions Authority.
"Coping with the rise in deficits over 2016 could have significant implications for members, who will undoubtedly have to take some of the pain - for example, cuts in benefits or closure to future accrual," he said.
The latest crisis for pensions comes despite almost a third of defined benefit schemes shutting down in the past 10 years.
Bank of Ireland had the biggest deficit at €736m, followed by CRH. Only insulation board maker Kingspan was in surplus. Guinness brewer Diageo was close to being fully funded.
The build-up of massive deficits was blamed on the Brexit referendum, which led to a fall in bond yields. This, combined with European Central Bank's quantitative easing, has led to the liabilities soaring.
The liabilities are the cost of paying out pensions if the scheme closes. Lower bond yields, or interest rates, mean more money is required to meet a set level of pension.
Defined benefit schemes had a good year in 2015, but those gains were wiped out by a dramatic rise in the deficits in the first nine months of this year.
LCP estimates that the combined deficits of the companies analysed rose to €6.8bn in September.
Mr Daly said the unexpected result of the US presidential election had also had a knock-on impact on pension scheme deficits.
"Bond yields in the US and across Europe rose in the immediate aftermath amid expectations of an increased US fiscal stimulus and this has certainly helped offset some of the deficit increases over 2016.
"However, as the ultimate policies of a Trump presidency remain unclear, the election result is likely to lead to increased market volatility continuing."
Chief executive of the Irish Association of Pension Funds Jerry Moriarty cautioned against more scheme closures. He said members had already been hit with cuts in benefits.
"We do not believe it would be in the best interests of members to force schemes to wind up because of unprecedented bond yields that are outside their control," he said.
The research shows some companies have taken steps to reduce their liabilities this year. In some cases the accrued benefits for existing members were cut, such as at Bord na Móna.