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Pension Provisions

Dáil Éireann Debate, Wednesday - 18 April 2012

Wednesday, 18 April 2012

Questions (49)

Barry Cowen

Question:

43 Deputy Barry Cowen asked the Minister for Finance when he expects sovereign annuity bonds to be available to the pension industry; and if he will make a statement on the matter. [19271/12]

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Written answers

The legislation necessary to facilitate the introduction of sovereign bonds/annuities was enacted in the Social Welfare (Miscellaneous Provisions) Act 2010. Sovereign annuities can only be purchased by the trustees of occupational pension schemes (both defined benefit and defined contribution schemes) and such products must be certified by the Pensions Board as being suitable. Detailed guidelines setting out the certification conditions required for these products have been prepared and published by the Pensions Board.

The introduction of sovereign bonds will broaden the range of options available to pension scheme trustees to ensure the future solvency of pension schemes for all scheme members by providing scheme trustees with a choice to match their scheme liabilities against any certified European annuity and put pension schemes on a more secure footing. It is expected that this will relieve some of the current funding difficulties of defined benefit schemes and may also encourage pension trustees to move some of their assets from equities to bonds which would be welcome as part of a prudent and de-risking investment policy direction.

The NTMA informs me that it has reached agreement with the pensions industry — the pension funds and the insurance companies who sell annuities to them — on the structure of a new type of bond which will facilitate the creation of long term annuities based on the Irish Government bond yield curve. The new structure is for amortising bonds with maturities potentially ranging from 15 to 40 years which pay the investor an equal amount each year over the life of the bond rather than the usual annual interest (or coupon) payment followed by the repayment of principal at maturity. The NTMA stands ready to provide these bonds to the pensions industry as soon as the industry is in a position to invest in them and the products that the industry proposes to offer are certified by the Pensions Board.

On 5 April 2012 the Minister for Social Protection published new draft legislation, the Social Welfare and Pensions Bill 2012, which provides for the introduction of a risk reserve into the funding standard for pension funds. The Minister for Social Protection stated: “The Funding Standard, which has been in abeyance for some time will be restored initially and will provide an allowance for the purchase of sovereign annuities and bonds. The requirement to provide for a risk reserve will take effect from 1 January 2016.” The NTMA expects that the restoration of the funding standard following the enactment of the legislation will create the conditions in which the trustees of pension schemes will actively consider the option of investing a certain amount of their funds in Irish Government bonds, including the new amortising bonds, and in sovereign annuities based on those bonds.

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