2013 was a better year for Irish defined benefit (DB) pension fund assets, with fund values up an average of 10% during the year, according to pension experts Mercer. “Global equities saw tremendous growth and were up by over 20% during 2013, delivering some relief to underfunded schemes,” according to Sean O’Donovan, Partner and Head of Mercer’s Defined Benefit Risk Group.
While many DB pension schemes here continue to face funding challenges, schemes will have seen a shrinking of deficits in the past twelve months. This is based on Mercer’s Pensions Risk Survey data which shows that the accounting deficit of defined benefit pension schemes, for the companies listed on the Irish Stock Exchange and leading semi-states, has fallen by an estimated €1.6 billion over 2013. This brings deficits back close to levels last seen in 2008.
Looking forward to 2014 Mr O’Donovan commented “Importantly, many companies and trustees are now more prepared for the volatile market conditions we see today. Pension schemes are better positioned than in 2000 or 2008 to protect their gains. Many schemes have put in place investment strategies where they systematically de-risk as funding levels improve; in Ireland for our clients we saw over 30 funding level triggers hit during 2013.”
In simple terms this de-risking is likely to entail an increase over time in secure bond holdings, generally at the expense of equity investments. Mr O’Donovan commented “Getting all of the stakeholders involved lined up to capture and lock in improved funding levels as well as reducing risk exposures is the key to successful risk management. This illustrates one of the reasons why more and more companies, are putting in place longer term funding and investment strategies, or “journey” plans, with an objective to manage or reduce pension risk over time.”