IRELAND - The Irish government has agreed to issue new bonds and sovereign annuities in line with proposals put forward by the Irish Association of Pension Funds and the Society of Actuaries in Ireland.
Minister for Social Protection, Éamon Ó Cuív TD said the bonds will be available for investors and pension schemes from January 2011.
Under the agreement, the National Treasury Management Agency will issue bonds which will facilitate the creation of sovereign annuities.
Ó Cuív said: "The vast majority of Irish pension funds invest in bonds that are non-Irish bonds. This leads to an outflow of money from this State - money which would be better invested in Ireland.
"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."
He added: "It was important to ensure that the widest range of options was available to pension scheme trustees."
He gave assurances that that this initiative is voluntary and it is up to pension scheme trustees to decide whether or not to avail of the options available for their schemes.
Ó Cuív said the proposal fits into the longer-term aims of pension policy outlined in the National Pensions Framework earlier this year as it will help to address the existing deficits in defined benefit schemes and also assist those who wish to transition to the new defined benefit model, currently being developed.
It also supports a move away from the reliance on higher risk equity investments by pension schemes. The funding standard will be amended to enable pension schemes that purchase bonds or sovereign annuities to re-price their liabilities.
"I believe this is a good development," said Ó Cuív. "Investing in bonds enables schemes to move away from equities where they have experienced losses and puts pension schemes on a more secure footing.
"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."
The Minister dismissed concerns that investing in Irish Government bonds was risky, stressing there was "absolutely no risk" of Ireland defaulting on its sovereign debt.
He added: "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 low percentage by EU standards.
The Minister also announced that on the basis of this decision made by the Government, and the forthcoming publication of the new defined benefit model, the Pensions Regulator will announce the final deadline for funding proposals in January 2011.
The proposals were first put forward by the IAPF and SAI earlier this year. (Global Pensions: 20 July 2010)
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