The defined benefit (DB) pension schemes of Ireland Stock Exchange Overall Index (ISEQ)-listed companies had an estimated surplus of over €1.1bn at the end of last year, according to Mercer Ireland.

This contrasts with historic lows and multi-billion-euro deficits for DB pension schemes at times over the last decade, peaking at a deficit of around €4.5bn in December 2016.

Mercer’s analysis found that DB pension scheme funding positions remained steady and generally in surplus last year due to strong growth across all major asset classes, including equity markets, which were up 15-25 per cent. While bond yields fell and pension scheme liabilities increased over 2023, yields remained significantly higher than in the years prior to 2022 when they were near 0 per cent.

Corporate bond yields – through which companies measure DB pension scheme liabilities – fell by about 0.6 per cent in 2023. A fall in bond yields increases pension scheme liabilities, meaning that ISEQ-listed companies saw liabilities increase by 5-10 per cent in aggregate last year. This increase in liabilities was partially offset by lower inflation expectations, Mercer said.

Over the course of 2024, corporate bond yields have risen again, which has reduced pension scheme liabilities. While rising yields have reduced the value of pension scheme assets held in bonds, Mercer expects funding levels to have improved through to the end of May 2024.

Commenting, Mercer Ireland wealth corporate consulting leader, Peter Gray, said: “Pension scheme funding remains healthy with elevated bond yields and lower liability values. Inflation expectations have fallen, and the European Central Bank has recently cut rates after successive increases.

"At the same time, many schemes have de-risked, reducing the likelihood of significant deficits from future rate cuts. However, those schemes that remain exposed to interest rate changes should consider their next steps and align investment strategies with future pension obligations.”

---