BILLIONS WERE wiped off the value of Irish pension funds in August as they recorded their worst monthly performance in close to three years.

The average Irish group managed pension fund reported a loss of 5.9 per cent of its value during the month as market volatility unnerved investors, with Irish Life suffering a decline of 7.8 per cent of investors’ funds.

Over the year to date, Merrion Investment Managers is now nursing double-digit losses (10.4 per cent), with the average fund now worth 8.4 per cent less than at the end of 2010

The downturn last month was so severe that it has wiped out average gains in the sector over the past three years, despite a solid recovery in the sector in 2009 and 2010.

Just two fund managers – Canada Life/Setanta and Standard Life Investments – are reporting any gain for the past 12 months, 0.8 per cent and 0.2 per cent respectively, not enough to offset inflation.

Together with Zurich Life, they are the only managers to report growth, on average, over the past three years, with Standard Life’s 1 per cent gain per annum the best outcome.

Over the five year period, everyone is in the red, with the damage ranging from -1 per cent per annum at Zurich to -4.9 per cent per annum at Aviva Investors.

Kleinwort Benson Investors is reporting annual average losses for the past decade, a period in which funds overall produced a gain of just 0.9 per cent per annum.

Funds are also facing a squeeze from tumbling bond yields which, with falling equities is widening scheme deficits, threatening the incomes and retirement dates of future retirees.

At the heart of their problems is a steady move by pension plans to cut exposure to risk after the financial crisis.

This year has been a nightmare for many in the industry – which controls $35 trillion, or a third of global financial assets – and funding deficits are posting double-digit rises.

We had a credit crisis and government bond crisis, and the third one we have is the pension crisis. This is the one where everything is going wrong and theres no obvious way out, said Kevin Wesbroom, UK head of global risk services at consultancy Aon Hewitt.

The real killer is liabilities are going up because in the flight to quality everyone gets out of equities and runs for cover in safe assets like government bonds, and yields are falling, said Wesbroom. - (Additional report, Reuters)