Pension deficit for top 10 PLCs over €3.3 billion

The combined pension scheme deficit for the State's top ten public companies was €3.3 billion at the end of 2004, according to a leading human resource consultancy.

Mercer Human Resource Consulting says pension deficits increased dramatically last year from an estimated €1.9 billion at the end of 2003.

It said the total deficit represented more than 5 per cent of the market capitalisation of the top ten companies and proved "the schemes were an increasingly important aspect of business risk management for companies".

Mercer said the increased deficit was due to the dramatic fall in long bond yields at the end of 2004.

The average pension managed fund grew by 10.4 per cent in 2004. However long bond yields fell from 4.9 per cent at 1st January 2004 to 4.2 per cent at 1st January 2005. Yields have fallen further since the beginning of the year.

Senior Consultant Ms Joyce Brennan said: "As several major companies prepare to release their results, this dramatic increase in pension scheme deficits may come as a surprise to shareholders considering the better than expected performance of pension scheme assets over 2004 and the increase in pension contributions paid by many companies."

Ms Brennan said: "This fall has occurred due to significant demand for eurozone government bonds, fuelled by dollar weakness, and demand from pension funds and insurance companies to hold assets that more closely match the accounting treatment of their liabilities."

She said: "The negative impact on liabilities has been more significant than the positive impact on assets."

"Companies now understand that the potential for a further fall in bond yields can be a more significant financial risk for reported pension scheme deficits than the risk that equities will not perform," she added.