The Eurozone crisis cost Irish pension funds over €2bn during 2011, according to Mercer. The consultancy firm also predicted that with the current outlook managing risk will continue to be the most important focus for trustees in this year 

"The impact on equity markets varied by geography, as the crisis hit growth expectations in the Eurozone for the foreseeable future, and this has hit pension fund assets," said Noel Collins, senior investment consultant with Mercer's investment business in Ireland. 

Collins stressed that the crisis hit many bond markets, in particular those of peripheral EU countries which resulted in severe losses for Irish pension funds.

Earlier this month figures released by another consultant, Aon Hewitt,  revealed that the average Irish pension fund lost almost 2.5% of its value last year, despite a last minute 3.2% increase in December. Aon Hewitt blamed heavy volatility in investor sentiment in the Eurozone for the drop.

Mercer estimates that Irish pension scheme liabilities have grown over the last year, further exacerbating the situation. "Due to the 'safe haven' flight to German bonds, annuity prices and hence pension liabilities have risen sharply," states the consultant.

Liam Quigley, head of Mercer's DB Risk Group predicted that in order to manage risk in 2012 schemes would have to implement both traditional and non-traditional risk management strategies.

"In addition to increasing bond holdings, generally at the expense of more volatile growth-oriented investments, there is likely to be a focus on interest rate and inflation hedging, liability management exercises such as annuity buyouts and the offering of enhanced transfer values or the use of non-cash funding options to smooth cash contribution requirements."

The National Pensions Reserve Fund (NPRF) published figures on 13 January which indicated that it had seen its assets under management fall by €8bn in 2011. The losses can be contributed to the fund's mandatory holdings in the two troubled Irish banks, Allied Irish Banks and Bank of Ireland.

Since 2009 the fund has invested €20.7bn in preference and ordinary shares in the two banks, including a €10bn investment made in July last year.

The scheme is now thought to be making changes to its discretionary portfolio but details have not yet been revealed.
Mercer says that the end might not be near yet, stating: "Even if the gloom of abject growth lifts, the fog of uncertainty is likely to remain."

azeevalkink@wilmington.co.uk