The total Irish defined benefit pension (DB) scheme deficit fell to €100m at 30 September 2020, down from €1bn at the end of 2019.

The figures from LCP Ireland also revealed that DB schemes have estimated total liabilities of €28.6bn compared to total estimated liabilities of €28.7bn.

In December 2018, the total DB deficit was €600m, and the dramatic changes over the past couple of years shows the volatility of DB deficits, LCP said.

However, longer-term analysis shows a marked improvement in average funding levels over the 10 years following the economic crash of the late noughties. Despite the effects of short-term volatility, the analysis shows that the average funding level of the companies analysed rose from 81 per cent in 2008 to 92 per cent in 2019.

Over the period, LCP revealed that the average allocation to equities for the companies analysed has also fallen significantly from a high of 59 per cent disclosed in 2009 to 30 per cent in 2019.

The average equity holding remained at 30 per cent from 2018 to 2019 but this was during a period of very strong equity performance suggesting a continued de-risking over the period from equities. LCP said the trend to diversify assets away from more volatile equity holdings continues.

Despite this, LCP said that considerable risks remain within pension schemes. In particular, the pension schemes’ funding positions remain quite exposed to changes in interest rates and inflation expectations.

“The analysis indicates that a reduction of 1 per cent in bond yields (discount rates) would result in an average reduction in the funding level of 10 per cent,” the report stated.

In addition, companies are still paying substantial costs to their pension schemes, the report found. In 2019, €700m was paid into schemes by companies, following €900m in 2018 and €1bn in 2017.

“It is clear that pensions remain one of the most significant costs for these organisations. In many cases, the employer contributions were significantly higher than the cost of accrual as attempts continue to eliminate past service deficits,” the report said.

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