The performance of stock markets this year has helped to wipe around €1 billion off the balance sheet deficit of defined benefit (DB) pension schemes for ISEQ-listed companies.
According to an analysis by Mercer, a stock market rally - which saw global equity markets rising by over a fifth year to date - increased scheme assets, while rising bond yields have reduced liabilities.
The outcome is described as the 'perfect scenario' for DB pension schemes.
The performance was achieved despite some recent volatility on markets which has been marked by heavy selling in response to global uncertainty around the omicron variant of Covid-19.
Markets have also recently been hit with bouts of volatility in response to concerns around soaring inflation.
Stock markets, however, have performed strongly overall since a big selloff of company shares in March of 2020 when the pandemic first struck.
The rally has been assisted by massive amounts of liquidity being injected into the system by central banks globally.
Overall, Mercer estimates that the cumulative DB balance sheet deficits for ISEQ-listed companies could be close to zero at the end the year.
"2021 looks set to be a good year for pension scheme deficits reported on ISEQ company balance sheets," Peter Gray, corporate consulting leader with Mercer, said.
"A near perfect scenario of higher yields and strong asset performance will have had a positive impact on DB pension scheme funding levels. The only headwind has been the rise in inflation expectations, which will have increased pension scheme liabilities insofar as the benefits are linked to inflation," he added.
The strong performance of equities will also have contributed to a rise in the value of pension pots of members of defined contribution (DC) pension schemes.
"Members should be conscious of their investment time horizon, with those closer to retirement looking to reduce exposure to riskier assets," Mr Gray advised.
"Many default investment options offered by trustees do this automatically," he added.
He warned that higher inflation levels may also impact members' purchasing power when they retire and that members should factor this into their investment decisions.
Defined contribution schemes are the more commonly available schemes today with the shift away from defined benefit schemes having accelerated in the last few decades.
Defined contribution schemes are composed of an individual's contributions, as well as those of an employer, which are both invested and the proceeds used to buy a pension or other benefits at retirement.
Defined-benefit plans provide a specified payment amount in retirement.
