ISEQ free-fall helped pension funds drop by €27bn last year

THE VALUE of Irish pension funds fell by €27 billion last year, with the group managed funds nursing an average loss of 34.8 per cent. Despite a rally in the final days of 2008, funds lost an average of 3 per cent during December as stock markets struggled to regain any confidence.

The turmoil last year, coming on top of modest losses in 2007, has more than wiped out double-digit gains in the three previous years. Irish group managed pension funds have now lost an average of 0.8 per cent of their value for each of the past five years and annual average gains over the past decade are now negligible.

Pension funds were particularly badly affected by their overexposure to an Irish market that was one of the poorest performers globally in 2008. Shares in the Dublin market lost about two-thirds of their value last year.

“The average Irish pension fund . . . had a weighting of 15 per cent in Irish equities at the start of 2008,” said Betty O’Reilly, of pension advisers Hewitt. While this fell to 7 per cent by the end of the year, largely as a result of the precipitous decline in the price of Irish shares, “the exposure to Irish equities remains well above the weighting of the ISEQ in the world equity index and indeed its weighting in the index of euro-zone equity markets,” Ms O’Reilly added.

Fiona Daly, the managing director of Rubicon Investment Consulting, said the fall in the Irish stock market last year knocked €4.6 billion off the value of Irish pension funds in 2008.

“Exacerbating the difficult situation is the fact that defined benefit pension schemes will have seen their liabilities increase by between 5 per cent and 10 per cent over the course of the year, due to falling bond yields,” said Ms Daly.

Bond yield determined the cost of buying annuities, which provide pension income. “The cost of buying a pension at retirement for members of defined contribution schemes will have risen by a similar amount,” Ms Daly added.