Last year the Government proposed to provide sovereign annuities which would be priced by reference to Irish bond yields.  Sovereign annuities are annuity products issued by insurance companies where the payment of the annuity is linked to the payment of specified bonds.  The National Treasury Management Agency (NTMA) will issue bonds to facilitate the creation of sovereign annuities based on Irish Government bonds with interest rates to be announced in light of market conditions. 

Sovereign annuities must be certified by the Pensions Board, and the Social Welfare and Pensions Act 2010 amended the Pensions Act to enable the Pensions Board to approve certain contracts and policies of assurance where it has been determined that these contracts or policies are capable of securing benefits for pensioners.  Trustees can buy sovereign annuities on behalf of pensioners from insurance companies or buy Irish Government bonds in the name of the scheme or a combination of both.  If sovereign annuities or bonds are purchased in the name of the scheme, the trustees will take the credit risk and continue to be responsible for payments to pensioners.  If annuities are purchased in the name of the pensioners, they will take the credit risk as the annuities will belong to them.  Trustees will need to consider whether their scheme should retain the payment obligation or whether pensioners should bear any level of risk as regards any potential payment default.  It is also expected that the minimum funding standard (MFS) will be changed to allow pension schemes that invest in sovereign annuities or Irish Government bonds to reflect the higher yield in their liability calculations to the extent of their investment.  The issue of bonds by the NTMA and sovereign annuity products from insurance companies is awaited, as is a new funding standard. 

Contributed by Michael Wolfe.