IRELAND - Falling French and German bond yields coupled with declining equity markets in August have left Irish pension funds with the renewed prospect of funding difficulties, Hewitt Associates says.
In its latest set of monthly investment performance figures, the firm said market uncertainty surrounding the stability of the economic recovery saw global equities decline by 1.3% in the month of August. And despite Europe's stronger economic prospects, Eurozone equities continue to perform poorly, falling by 3.8% over the month.
Hewitt investment consultant Betty O'Reilly said the fall in bond yields and equity markets had led to an increase in the liabilities of defined benefit schemes.
"With declining equity markets leading to a fall in asset values, pension funds face a return to severe funding difficulties," she added.
"Investors are questioning whether the US economy can avoid slipping back into recession. Employment figures remain poor and markets are now looking to see what action the Federal Reserve may take.
"Concerns still exist about European banks, and the peripheral economies face severe austerity programmes. However, Irish investors in non-Eurozone assets have benefited from the decline in the value of the Euro."
Eurozone bonds rose by 4.2% in the last month, with German and French bond yields falling sharply as investors continue to seek out a safe haven, Hewitt said. In contrast, yields on Irish, Greek and Portuguese bonds increased during August.
The Hewitt Managed Fund Index, an indicator of the performance of traditional Irish Pension Managed funds, fell by 0.6% in August.
The difficult market conditions have led to poor returns for funds across Europe and the US, with figures released by Mercer today showing pension deficits at S&P1500 companies hit an all-time high at the end of August. (Global Pensions: 2 September 2010)
The British Medical Association (BMA) has warned chancellor Philip Hammond to reform the NHS pension scheme rules or doctors will reduce their working hours.
The lifetime allowance should be scrapped and replaced with a lower annual allowance, last week's Pensions Buzz respondents said.
Action for Children Pension Fund has outsourced its pensions administration to Trafalgar House.