Friday 9 December 2016

Pension black hole surges by €2bn at top companies

Published 26/11/2015 | 02:30

Falling bond yields last year had a dramatic impact on corporate balance sheets (Stock photo)
Falling bond yields last year had a dramatic impact on corporate balance sheets (Stock photo)

The combined pension deficits at the State's largest private and public companies have surged by €2bn.

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AIB and Bank of Ireland had the highest deficits at around €1bn each, according to the research by pension consultants LCP Ireland.

Falling bond yields last year had a dramatic impact on corporate balance sheets. This was despite the positive investment performance of global equity markets. The combined deficits of the companies analysed stood at €5.8bn in December 2014.

State-owned AIB had the highest deficit at €1,064m, followed by Bank of Ireland at €986m and semi-state travel company CIE, at €702m.

AIB's deficit has risen from just €94m in 2013. This was after the bank was controversially allowed to transfer assets with a face value of €1.1bn from its own balance sheet to the bank's pension scheme. But by 2014 the deficit had increased by €970m, LCP confirmed.

Only one of the companies analysed had sufficient assets to meet its funded liabilities, building materials maker Kingspan.

The LCP Ireland report examines the defined benefit pension schemes of 11 of the largest Irish-quoted companies, 11 semi-state/state-controlled companies with defined benefit pension schemes and four companies listed on other exchanges, but operating significant defined benefit pension schemes in Ireland.

The combined deficits of the companies analysed stood at €5.8bn in December 2014.

This is despite paying contributions of more than €1.27bn to their pension schemes last year.

LCP Ireland's analysis looked at 26 companies in 2014 as a number, including Ryanair and Anglo Irish Bank, had closed their defined benefit schemes.

Defined benefit schemes promise to pay a set level of pension based on final salary and years of service. But they have become very expensive to fund due to people living longer and low investment returns.

Partner in LCP Conor Daly said: "The results of the 2015 report highlight that many companies remain under considerable pressure in maintaining their defined benefit pension schemes.

"A number of schemes have disappeared through wind-up over 2014, benefits have been cut in others and more are implementing other deficit funding programmes." He said Ryanair made a final contribution of €12.5m into its Irish defined benefit plan and the plan was subsequently wound up.

Bank of Ireland's cheme, which included elements of defined benefit and defined contribution, was closed to new entrants and a new defined contribution scheme introduced.

Average level of exposure to equities fell from 49pc in 2013 to 45pc in 2014. The allocation to bonds increased to 36pc.

Low bond yields, the introduction of additional risk reserve and exposure to equity markets combine to keep pension schemes under pressure, Mr Daly said.

Corporate bond yields fell dramatically last year and at the start of this year as the Eurozone struggled to deal with difficulties in Greece and low economic growth.

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