Gaps in final salary pension schemes widen

The financial hole in the largest final salary pension schemes in the State deepened dramatically in 2014, according to a new study.

Despite rising stock markets, historically low bond yields pushed the deficit in 25 of the biggest defined-benefit schemes up by more than 50 per cent. Between them, assets now fall €5.8 billion short of projected liabilities.

The two big banks are facing the biggest problems, with the deficit in the AIB fund standing at €1.06 billion at the end of last year, according to the study by LCP Ireland. That is a massive increase on the €94 million deficit the bank had the previous year.

Bank of Ireland’s pension fund deficit rose from €841 million to €986 million over the same period. The LCP report, the seventh annual survey it has published, found that only one of the companies examined – Kingspan – had sufficient assets to meet it liabilities, at 107 per cent.

On average, the funding level of the 25 schemes studied was 83 per cent, down from 86 per cent in 2013.

Among semi-States, CIÉ has the biggest deficit at €702 million, up from €418 million a year earlier.

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

Corporate bond yields, already at historic lows, suffered further sharp falls during the year as the Greek crisis flared and Europe in general suffered low economic growth.