Pensions crisis looms as funds lose €18bn in value (Irish Independent)

04 November 2011

A Major pensions crisis is looming after more than €18bn was wiped off the value of pension funds in the last year.

The massive losses -- one-fifth of the total value of the funds -- sparked fears that there will be wholesale closures of company pension funds, known as defined-benefit schemes, by employers.

And those who have personal pensions were told they will need to radically increase their contributions if they are to have an adequate income when they give up work.

Pension managers and officials from the Department of Social and Family Affairs are to hold an emergency meeting today to discuss the issue.

The department has responsibility for pensions.

The managers are appealing for the strict rules on pension funds to be relaxed.

Otherwise, there will be a mass closure of company pension schemes because stock market losses have pushed hundreds of them into huge deficits, they warned.

There was no easing up of the pressure on funds as the stock market mayhem continued yesterday, reversing many of the gains made last Friday when the markets surged.

The Irish Stock Market lost 5.6pc of its value yesterday, leaving its shares valued at €42bn less than they were worth at the start of the year.

The fall came as US Federal Reserve Chairman Ben Bernanke and US Treasury Secretary Hank Paulson addressed the US Congress on the shape of a $700bn proposed rescue plan for US banking sector.

Shares in London, Europe and the US suffered as Mr Bernanke told Congress that failure to enact a plan to rid banks of bad assets would threaten world markets and the US economy.

The continued sharp falls in share prices have hit Irish pension fund values hard.

The average company pension scheme has around 60pc of its funds invested in Irish and other shares, while personal pension or defined-contribution schemes have around three-quarters of their assets in shares.

The bloodbath on stock markets has seen overall Irish pension funds shed €16bn in value so far this year.

Since September last year, the losses racked up are a staggering €18.1bn, according to calculations by Fiona Daly of Rubicon Investment Management.

She explained that strict rules on how pensions are funded means that stock-market losses have pushed huge numbers of company pension schemes into deficit.

This was likely to force employers to shut more company schemes.

Already in the past few years there has been a sharp increase in the number of company schemes closed to new members, or just closed down.

And the Irish Association of Pension Fund Managers (IAPF) said it was meeting government officials today to push for a relaxation of pension fund rules.

Jerry Moriarty, of the IAPF, said he expected employers with company pension schemes to come under huge pressure to shut them down.

"The losses for pension funds bring home the high levels of risk that lie with the employers," Mr Moriarty said.

The IAPF has already written to Social and Family Affairs Minister Mary Hanafin appealing for pension fund rules to be changed.

And investment consultant Noel Collins of Mercer warned those contributing to personal pensions, or defined-contribution schemes, to put more money into their pensions to counteract the sharp losses.

Yesterday was a black day on the Irish Stock Market.

Dublin bank shares suffered from the start of business when a report in the 'Wall Street Journal' suggested that the huge US bailout of banks would not help European banks.