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The Actuary The magazine of the Institute & Faculty of Actuaries

Pension fund deficits rise in Ireland

Irish pension funds finished 2004 worse off, despite a 10.4% growth in assets, as falling bond yields meant the fund’s liabilities rose at an even faster rate. Pension adviser Mercer says liabilities rose 15% last year as a result of falling bond yields, frustrating efforts to recover the losses incurred by schemes following the bursting of the technology bubble. Low bond yields push up the cost of providing pensions.

‘On first glance, it would appear that pension funds have experienced better times in 2004’, said Tom Murphy, head of Mercer Investment Consulting. ‘Unfortunately, that is not the case.’ Coyle Hamilton Willis actuary, Shane Wall, said the fall in bond yields was exacerbating problems caused by the fact that pensioners are living longer.

‘The liabilities disclosed in company accounts will be significantly higher than last year’, Mr Wall said. ‘For many schemes, interest rate movements [which affect bond yields” and mortality improvements alone will cause liabilities to increase by 30% or more.’Already last year, Pensions Board chief executive Anne Maher said, 41% of the 589 schemes reporting to it failed to meet the statutory minimum funding standard. 160 applied for more time to get their schemes back in order.

Mr Murphy said the significant fall in bond yields meant that some schemes that had filed funding proposals – required before any extension is granted – around this time last year might find themselves ‘off-track already’. ‘This time last year, we were being told that bond yields were at a historic lows and would fall no further’, said Mr Murphy. ‘That clearly hasn’t happened.’ He said the latest projections were for a 3% rise in yields in 2005 but, even if accurate, that would be nowhere near enough to offset last year’s losses.