Iseq companies’ pension deficit widens to €1.6bn amid stock market slump

The total pension deficit for Irish publicly-quoted companies widened by 23 per cent last year, largely due to a slump across global equity markets as investors fretted about economic growth and trade tensions, according new figures.

Human resources consulting firm Mercer estimates that the combined deficit across defined benefit (DB) plans operated by Iseq companies rose to €1.6 billion at the end of last year from €1.3 billion 12 months earlier.

Iseq companies from CRH to market minnow housebuilder Abbey continue to operate legacy DB schemes, where retiree entitlements are linked to individuals' final salaries, even as the market has moved en masse in recent decades towards defined contribution (DC) plans, tied to the performance of employer and employee investments. Even where DB schemes remain, many have been closed to future accrual of benefits.

"After a promising start, 2018 was a difficult year, with deficits on Irish company balance sheets likely to have increased for schemes that are not in a well-matched position," said Peter Gray, senior consultant with Mercer's strategic solutions group.

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Recent losses

“2019 has started well, with markets up by over 5 per cent, unwinding some of the recent losses. Nevertheless, significant uncertainty exists relating to Brexit, US trade wars and central bank interest rate policies.”

Global equities, measured by the MSCI All World Index, declined by 11 per cent, in 2018, while the Iseq slumped 22 per cent, and Wall Street’s S&P 500 dropped more than 6 per cent.

Dublin-listed companies are estimated to have a total of €20 billion of DB assets, including overseas schemes, according to Mr Gray. The wider Irish DB market amounts to about €60 billion.

Meanwhile, Irish plans have among the highest level of equity investments in Europe, at 33 per cent last year, compared to average of 28 per cent, according to Mercer data. Danish schemes have the lowest stocks ratio, at 10 per cent. Bond allocations make up more than half of most European defined benefit pots, including in Ireland.

Opportunities

Mercer said it was important for sponsors and trustees of DB pensions to keep an eye on market developments in 2019 and “consider whether there are opportunities to de-risk their schemes”.

“Further pressure will come on trustees with the new European pensions directive, which will come into force in 2019,” the firm said. “This will require DB and DC schemes to implement schemes to implement formal risk management structures, leading to increased governance, member communication and disclosure requirements.”