The value of Irish pension funds has fallen by €7.6 billion during 2002, according to estimates by the Irish Association of Pension Funds (IAPF).

Pension funds have fallen from €50.6 billion at the end of last year to €43 billion now, due to sustained bear markets, the association said yesterday.

IAPF chairman Mr John Feely said the likelihood of lower returns on pensions and low interest rates, combined with increased life expectancy, meant recent trends toward early retirement were not likely to be affordable in the future.

Mr Feely added that investment in equities has provided the best return over the long term and had been a major factor contributing to the growth in Irish pension assets, from just €12 billion 10 years ago to their current level.

However, he warned that returns from equities in future may not be as high as those achieved in the past.

Strongly funded pension funds in the 1980s resulted in a trend for people in company schemes to retire in their late 50s, Mr Feely said.

"That situation won't be happening in the future. The more typical thing will be for people to retire in their mid-60s or even later. Pension funds won't be able to sustain people retiring earlier than that."

People in occupational pension schemes should seek advice as to whether they need to top up their pension through additional voluntary contributions (AVCs), according to Mr Feely.

"The level of take-up on AVCs is certainly disappointing, particularly among younger people," he said. "Individuals are going to have to take more personal responsibility to ensure they have adequate provision for retirement rather than relying on the State or their employer to ensure this."

Results of the annual IAPF Asset Allocation Survey for 2001, released yesterday, show a significant shift from Irish equities to US and euro-zone holdings.

Exposure to the Irish equity market fell to 15.7 per cent in 2001, down from 18.7 per cent at the end of 2000.

Investment in Irish equities still makes up more than half (51 per cent) of the total equity investment by Irish pension funds in the euro zone, but Mr Feely said pension fund managers were taking the opportunity to build up euro-zone equity holdings. This will reduce their significant exposure to the relatively small number of companies on the Irish market.

At the end of December 2001, a total of 64.6 per cent of pension fund assets were held in equities. The percentage held in equities but this is expected to fall this year, reflecting the stronger performance of bond and property markets. Fund managers may also be holding some new funds invested in pensions this year in cash.

The average managed pension fund lost 22 per cent of its value this year to the end of September, but recovered by about 5 per cent by the end of last month.