The strong performance of global equities saw the value of retirement pots for most members of defined contribution pension schemes rising during 2020, according to pension consultants Mercer.

Most pensioned workers are now members of defined contribution pension schemes, which are based on how much has been contributed to a pension pot and the growth of that money over time.

For members not approaching retirement, much of the pot tends to be invested in stocks and shares on global markets.

Stock markets suffered a big drop in values at the onset of the pandemic in Europe and the US last March.

However, there was a rapid recovery in values and global markets ended the year 12% higher, despite the earlier falls.

"2020 illustrated the difficulty in trying to time market events and the benefit of not making knee-jerk decisions," the report noted. 

"The fall in equity markets in March was swift and unforeseen and so too was the rapid recovery in market values driven by policy decisions. Those members who held fast through this period will generally have fared better than those who sold after markets fell and potentially missed the market rally," it added.

Defined benefit pension schemes also benefited from the rise in the value of equities in 2020 which helped schemes to keep their deficits steady.

Defined benefit - or DB plans - are set up by an employer and offer members a set benefit each year after they retire.

They are expensive for employers and have become less popular over time with most companies changing their company pension schemes from defined-benefit plans to defined-contribution plans.

As well as equity markets contributing to growth in pension scheme assets, schemes benefited from a rise in the value of bonds with euro zone government bonds up around 5% in the year.

However, this was offset by an increase in pension liabilities resulting from falls in corporate bond yields.

When bonds increase in value, the yield - or the return to be made on holding the debt - goes in the opposite direction.

Mercer estimates that the cumulative DB balance sheet deficits for ISEQ listed companies was around €1 billion at the end of 2020 - roughly in line with 2019.

"The persistent fall in bond yields over the past number of years means that many pension schemes that have funding reviews in 2021 will experience increased funding pressures as bond yields are 1% - 1.5% lower than three years ago," Peter Gray, Corporate Consulting Leader at Mercer said.

"Falling yields could increase pension scheme liabilities by 10% - 30% depending on scheme maturity. These funding pressures are especially unwelcome as companies seek to conserve cash to help withstand the impact of the pandemic," he said.

"Employers are likely to seek solutions to mitigate funding increases, for example, by slowing the pace of de-risking or extending the period over which deficits are funded," he added.