DEFICITS in traditional company pension plans of quoted companies rose last year, in a move that could put pressure on the schemes.

The black holes in the defined benefit pension schemes of Irish listed companies rose by 20pc last year, according to data compiled by Mercer.

The projected deficit rose from €1.3bn in 2017 to €1.6bn at the end of 2018, largely due to poor equity market performance at the end of last year. With many of Ireland’s largest pension schemes not included in the ISEQ constituents, the deficit across all Irish defined benefit schemes is likely to be higher.

Members of defined contribution (DC) schemes are also likely to have seen the value of their pension pots reduce, Mercer said. Defined benefit schemes promise a set level of pension based on years of service and final salary, but the promises have become increasingly hard to keep due to poor investment returns, people living longer, and higher levels of regulation.

With a DC scheme, the holder takes the risk, which means a poor investment performance can adversely affect the size of the pension pot.

Last year was a poor one for pension schemes in Ireland, consultants Mercer said. The first 10 months of the year saw strong equity market returns, but the final two months saw a sharp correction in all major equity indices and other risky assets.

The only safe haven for pension scheme assets was high-quality, long-dated euro government bonds. But for DB pension schemes, the strength of the long-term government bond market will result in higher values being placed on scheme liabilities, or the calculation of what a pension fund owes its members.

Senior consultant with Mercer Peter Gray said: “After a promising start, 2018 was a difficult year, with deficits on Irish company balance sheets likely to have increased significantly for schemes that were not in a well-matched position.”

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