Pension funds grew at their fastest rate in a year in December, recording an average investment return of 3.4 per cent that brought the total increase in 2006 to almost 13 per cent.
Although shy of the spectacular 21 per cent growth in 2005, the 2006 performance was still creditable, especially in light of rising bond yield which will have reduced pressure on the liability side of the equation for pension funds last year.
"A typical scheme may expect to see a combined improvement of around 20 per cent in its funding level (the ratio of its assets to its liabilities)," said Ian Sykes, director of investment consulting at Buck Heissmann. "This will make the employer's balance sheet look healthier and will enhance profits in 2007."
"There will have been a similar improvement in funding levels as measured by the Pensions Act Funding Standard, and this could mean lower cash contributions as well as lower accounting charges."
Strong corporate earnings and a flurry of mergers and acquisitions activity, which have driven stock markets throughout 2006, helped equities rally last month after a stagnant November return, according to Fiona Daly, managing director of Rubicon Investment Consulting.
The Irish stock market was one of the strongest performers globally in 2006, boosting the fortunes of Irish managed funds which remain overweight in their domestic market.
The overall investment returns for the sector cloak significant differences in performance by fund managers. AIB, the top performer last month, recorded a gain of 4.1 per cent in December, more than three times the 1.3 per cent return at Canada Life/Setanta. These two were also the best and worst performers over 2006 as a whole, with Setanta's 9.1 per cent return leaving it the only major fund manager not to record double-digit invest growth.
Over the medium term, Eagle Star continues to perform well with annual returns of 16.3 and 8 per cent respectively over the last three and five years - the latter taking account of the dotcom crash. Oppenheim remains the industry leader over the 10-year term with annual investment gains of 12.5 per cent.
Will the good news continue? Buck Heissmann's Ian Sykes says it is hard to imagine interest rates falling over the next year and notes that most pundits are cautiously optimistic about markets.
However, he warns that pension schemes need to make proper allowance for increasing life expectancy - an extra year of life can increase pension liabilities by 4 per cent.
