Defined Benefit pension liabilities of the top 30 publicly quoted Irish companies and 11 semi-state companies fell by over €2 billion to €24 billion in 2010, according to a new report released today by LCP Ireland.
Companies have begun to implement amendments to pension benefits (including in some cases the imposition of significant benefit reductions on Defined Benefit scheme members), the report outlines. Of the companies analysed, LCP Ireland found that approximately half had recognised a reduction in their pension liabilities following amendments to pension benefits during 2010.
Key findings of the study include:
• Of the companies analysed, only three reported that they had sufficient assets to meet their accounting liabilities. These are 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 companies analysed.
• Contributions paid during 2010 represented on average 2.8 times the cost of that year's pension accrual as companies sought to tackle past service deficits.
• Irish Defined Benefit pension schemes continue to have a higher than average allocation of assets to equities. During 2010, the percentage of assets of pension schemes in Ireland allocated to equities fell by only 1 percentage point to 58%. By comparison, in the UK it fell to 43% in 2010 from 46% in 2009.
Pension schemes in over half of OECD countries hold 30% or less in equities, while bonds continue to be the dominant asset class accounting for (on average) 50% of total assets (Ref: OECD July 2011).
The report 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 liabilities that it will inevitably be a significant factor for any planned corporate transactions such as mergers, take-overs, acquisitions and planned growth. AIB's pension liabilities at 31 December 2010 were more than 12 times its market capitalisation.
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 companies. Contributions remain at very high levels despite the economic downturn. However, it is also clear that an increasing number of companies 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. The recent introduction of the Pension Levy has served to erode confidence further. We expect very few Defined Benefit schemes will exist in their current form in five years' time."
|
