IRELAND - Ireland's Department of Social Protection is considering proposals that would see pension schemes purchasing annuities invested in government bonds to help fund liabilities.
The move, put forward in a joint plan by the Irish Association of Pension Funds (IAPF) and Society of Actuaries in Ireland (SOAI), would mean pension funds would be able to lower their deficits, as they would have to set aside less money to cover liabilities in the event of a scheme winding up.
Some three quarters of Irish defined benefit (DB) schemes are in deficit, to the tune of an estimated €30bn (US$38.6bn).
Under the proposal, the government would issue 10-15 year bonds, more suited to institutional investors' needs than the current five year notes. Pension schemes could then invest in these sovereign annuity bonds.
Irish funds assess their solvency on the market price of annuities, which at present are priced off 10-year German bonds because of their duration, availability and security rating.
These are subject to capital adequacy provisions however, and are therefore 15% to 20% more expensive than they would be if their pricing was based on Irish sovereign bonds.
A spokeswoman for the Department of Social Protection said: "The IAPF and SOAI have made a joint proposal in relation to funding pensioner liabilities which would involve schemes purchasing annuities invested in Irish government bonds. The proposal is under consideration."
IAPF director of policy Jerry Moriarty insisted the plan did not constitute a bail out of private sector schemes and said he viewed the proposal as a win-win situation for schemes and the government.
He added: "The proposal is trying to match up two needs; schemes are in deficit and the Irish government is borrowing at high rates on the market.
"We see this as a win-win situation, and while the concern is that pensioners could lose out if the government defaulted on the bonds, the same risk is there already for public sector workers and old age pensioners too.
"Most schemes will be getting their funding plans in to the regulator by the end of the year, so it would be helpful if they knew by then whether this would be happening or not."
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