Top Irish companies were able to reduce their balance sheet liabilities by more than €2bn after implementing pension scheme benefit amendments, although the majority still have significant deficits, LCP Ireland said.

DB pension liabilities of the top 30 publicly quoted Irish companies and 11 semi-state companies stood at €24bn in their 2010 company accounts, according to a new LCP Ireland report.

The report found that about half of the companies had reduced their pension liabilities by amending pension benefits during 2010, including in some cases the imposition of significant benefit reductions on DB scheme members.

Bank of Ireland implemented a number of amendments to benefits resulting in an overall reduction in pension liabilities of €733m, while ESB reduced a disclosed deficit of €2.2bn to a residual liability of €897m following an agreement on pension amendments with the ESB Group of Unions and a change in the accounting treatment from defined benefit to defined contribution., LCP said.

The average deficit of the companies analysed stood at 17 per cent of market capitalisation. Only three companies had sufficient assets to meet their accounting liabilities: RTE, Anglo Irish Bank and the National Treasury Management Agency.

The market capitalisation of the three main Irish banks, AIB, Bank of Ireland and Irish Life and Permanent, is overshadowed by pension liabilities and this will inevitably be a significant factor for any planned corporate transactions such as mergers, acquisitions and planned growth, the report found. With a market capitalisation of €324m and a pension deficit of €3.9bn, AIB's pension liabilities at the end of 2010 were more than 12 times the size of its market capitalisation.

Conor Daly, partner at LCP Ireland, said: “The report shows that the scale of pension liabilities is 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 traditional view of the defined benefit pension scheme being a solid pension for life is clearly being undermined by the recent experience and the increased examples of burden sharing with the membership. Indeed, 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 further erode confidence. We expect very few defined benefit schemes will exist in their current form in five years time,” Daly said.

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