08/12/2010
By Ilonka Oudenampsen
The Irish Government has agreed a new initiative which involves new bonds and sovereign annuities, said Minister for Social Protection Éamon Ó Cuív. These will be available for investors and pension schemes from January 2011.
Minister Ó Cuív said that most Irish pension funds invest in non-Irish bonds, leading to an outflow of money from Ireland. He said: “There are two major advantages to this proposal. Firstly, it allows for the retention of Irish funds for investment in Ireland and secondly it provides a higher rate of return for pension schemes. This will be particularly attractive for defined benefit schemes that are currently struggling with pension deficits and unable to meet the funding standard."
The National Treasury Management Agency will issue bonds which will facilitate the creation of sovereign annuities; both bonds and sovereign annuities may be purchased by pension scheme trustees and other investors. The Minister said that this initiative is voluntary and it is up to pension scheme trustees to decide whether or not to avail themselves of the options available for their schemes.
This proposal fits into the longer-term aims of pension policy as outlined in the National Pensions Framework as it will help to address the existing deficits in defined benefit (DB) schemes and also assist those who wish to transition to the new DB model, currently being developed. It also supports a move away from the reliance on higher risk equity investments by pension schemes.
"I am aware that pension scheme trustees need to be fully informed about the proposals being developed in relation to a new model for defined benefit pension schemes and when the bonds and sovereign annuities are made available in January 2011, full details of the new defined benefit proposals and related changes to the funding standard will also be made available," said Minister Ó Cuív.
Minister Ó Cuív also said: "People may say that investing in Irish bonds is risky but there is absolutely no risk of Ireland defaulting on its sovereign debt. The Government has stated this on many occasions and I want to be absolutely clear about this – it simply will not happen. In fact, moving from equities to bonds puts schemes on a more secure footing and minimises the risk of losses and over reliance on equities which they've experienced in the past."
The Minister also welcomed the fact that this proposal will assist the Irish Exchequer by bringing pension funds back into the country. Irish pension funds hold less than 5% of their assets in Irish Government bonds, a very low percentage by EU standards.
The Minister for Social Protection also announced that on the basis of this decision made by the Government, and the forthcoming publication of the new DB model, the Pensions Regulator will announce the final deadline for funding proposals in January 2011.
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