A strong surge by global equities this year helped wiped out a total €1 billion deficit that existed across defined benefit schemes of Irish publicly quoted companies at the start of last January, according to new figures from Mercer, the human resources consulting firm.
The last time aggregate Iseq pension schemes were in balance would have been before the 2008 financial crash,A 22 per cent rise by global equities so far this year and a rise in corporate bond market interest rates – or yields – have combined to deliver a “perfect scenario” for defined benefit pensions , according to Mercer.
Corporate bond yields, used as a reference to value the liabilities of pension schemes, rose over the course of 2021 as financial markets began to price in expected interest rate hikes over the medium term. This came as the spectre of inflation emerged amid a reopening of economies following the worst of Covid-19 restrictions.
Overall, Mercer estimates that the cumulative DB balance sheet deficits for Iseq-listed companies could be close to zero at the end of 2021, it said. “A near perfect scenario of higher yields and strong asset performance will have had a positive impact on DB pension scheme funding levels,” said Mr Gray. “The only headwind has been the rise in inflation expectations, which will have increased pension scheme liabilities insofar as the benefits are linked to inflation.”