Sovereign annuities are a new product, certified by the Pensions Board, which Irish Life has made available to trustees of defined benefit schemes. Sovereign annuities are cheaper than traditional annuities because they invest in specialist long-dated bonds issued by the National Treasury Management Agency (NTMA). These bonds offer higher returns than those returns available on German and French sovereign bonds which are typically used for pricing of traditional annuities. Insurers can pass on these higher returns but also have the right to reduce annuity amounts if payments are not received on the bonds as expected.
This first Irish Life Sovereign Annuity sale (a €20m+ total fund transfer comprising about half sovereign annuity and half conventional annuity) follows very quickly on from Pensions Board product certification in December 2012. Sovereign annuities have been eagerly anticipated by the market and give new options to trustees looking to restructure defined benefit schemes. This particular scheme bought a mixture of sovereign annuities and conventional annuities for its pensioners and used the savings to enhance the funds for the other scheme members – those not yet retired, who are switching to a Defined Contribution (DC) arrangement
Although the yields available on Irish Government bonds have fallen dramatically in the last few months (reflecting much improved market sentiment towards Ireland), there are still significant savings on sovereign annuities compared to traditional annuity products. The NTMA has indicated that it is targeting to raise over €3 billion in the next couple of years from Irish pension schemes investing in sovereign bonds and sovereign annuities.
For more information on Sovereign Annuities, please contact our Executive Manager, Shane O’Farrell by calling 01 704 2869 or email him at shane.ofarrell@irishlife.ie.
