Defined benefit (DB) pension scheme liabilities of the top 30 publicly-quoted Irish organisations and 11 semi-state organisations fell by over €2 billion to €24 billion in 2010, according to research by LCP Ireland.
Of the organisations analysed, the research found that approximately half had recognised a reduction in their pension liabilities following amendments to pension benefits during 2010.
The percentage of assets of pension schemes in Ireland allocated to equities fell by only one percentage point to 58%. By comparison, in the UK it fell from 46% in 2009 to 43% in 2010.
The research also found that the market capitalisation of the top three Irish banks – AIB, Bank of Ireland, and Irish Life and Permanent – is so dwarfed by their pension scheme liabilities that it will inevitably be a significant factor for any planned corporate transactions such as mergers, takeovers, acquisitions and planned growth.
AIB’s pension scheme liabilities at 31 December 2010 were more than 12 times its market capitalisation.
Key findings of the research include:
- Only three of the organisations reported sufficient assets to meet their accounting liabilities – Raidio Teilifis Eireann (RTE), Anglo Irish Bank and the National Treasury Management Agency.
- The average pension scheme continues to show a substantial shortfall, with the average deficit running at 17% of market capitalisation for organisations analysed.
- Contributions paid during 2010 represented on average 2.8 times the cost of that year’s pension accrual as organisations sought to tackle past-service deficits.
Conor Daly, partner at LCP Ireland, said: “The report shows that the scale of pension liabilities continues to pose a significant challenge for many of Ireland’s top organisations.
“Contributions remain at very high levels despite the economic downturn. However, it is also clear that an increasing number of organisations are seeking to share the burden of meeting these liabilities with the membership through various forms of benefit reductions. This is a trend we expect to see continue.
“The very existence of defined benefit as a form of employee pension provision is under threat as sponsors become more resistant to demands for increased contributions. We expect very few defined benefit schemes will exist in their current form in five years’ time.”
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