Local
articles | 12 November 2015

EAC’s €244.3m actuarial gap dwarfs 2014 profits

State-owned power producer Electricity Authority of Cyprus (EAC) said the re-measurement of its pension-plan obligations generated a €244.3m gap, which more than offset a €42m profit it generated in 2014.

The re-measurement resulted mainly from the actuarial re-evaluation of the present value of the EAC’s ‘defined benefit obligation’ to €757.3m in 2014 from €514.3m the year before, the power producer said in its 2014 annual report. In addition, the re-evaluation of the company’s pension fund assets rose to €539.3m last year from €537.2m in 2013.

Responding to a Cyprus Business Mail question, the EAC said that “the increase in the present value of its obligations resulted mainly from the substantial drop in interest rates globally, and as a result to the drop of the discount rate applied in the actuarial study from 3.73% in 2013 to 2.14% in 2014”.

“The actuarial shortfall is not the outcome of mismanagement but of artificial nature and results mainly from very low interest rates on the global market,” the company said. “The (pension) fund’s actuaries have repeatedly said that in 2014 this type of deficits are emerging across Europe. In case of an increase in interest rates, the gap will be substantially limited or even flip (to a surplus)”.

EAC, which according to Cyprus’ bailout terms is one of the state assets which the government has to privatise by 2018, said that the “expected benefits to be paid from the defined pension plan for the next year are €22.8m” compared to €20.8m in 2013, the company said. The benefits of pension funds of state-owned companies are government-guaranteed.

Source: Cyprus Mail

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