Turmoil knocks 2.5% off pension funds

Stock market turmoil knocked 2.5 per cent off the value of Irish pension funds last year, according to benefits consultant Watson Wyatt.

Funds are reporting full-year losses for the first time since 2002 following four years of double-digit growth.

The figures do not take account of inflation which means the actual devaluation of pension funds was closer to 7.5 per cent in 2007.

However, increasing bond yields are likely to have offset the damage for most defined-benefit occupational pension schemes.

Yields are expected to have risen by half a percentage point over the year.

That means many defined-benefit pension funds - where the pension is determined by years of service - with a relatively young age profile should see their funding position improve by between 5 and 10 per cent, according to Watson Wyatt.

Funds in general lost further ground in December.

The Hewitt Managed Fund Index, which endeavours to track Irish fund performance before fees, recorded a loss of 1.4 per cent in December alone.

Losses in the second half of the year of 7.5 per cent more than wiped out the 5 per cent gain accumulated over the first half of 2007.

Hewitt noted that Irish equities, in particular, weighed heavily on the negative return.

Irish funds remain disproportionately exposed to the domestic market, a factor that was exacerbated this year by its heavy financial focus.

The Irish equity market was down 26 per cent in the year .

The Pacific Basin and Euro area both recorded healthy positive returns while all other equity markets finished in negative territory.

Detailed performance figurers for the individual Irish fund managers are expected to be published today.