Treasury agency to offer pension bonds on ongoing basis

THE NATIONAL Treasury Management Agency (NTMA) gave more detail yesterday on the long-dated Irish government bonds it plans to issue as part of a plan to help company pension schemes manage liabilities.

Speaking at a briefing organised by actuarial consultants Lane Clark Peacock (LCP), the agency’s deputy director of funding and debt management, Anthony Linehan, said it would make the bonds available on an ongoing basis.

This would be instead of selling them in tranches on certain dates so that trustees could “work according to their own timetable”.

The bonds will allow pension funds to avail of Irish bond yields, which are higher than those of Germany, the benchmarks typically used when pricing annuity products.

Pension fund trustees can then match their liabilities to these higher yields, taking some of the pressure off schemes with large deficits.

It is expected that the interest rate on the bonds will be around 6 per cent.

The bond issue paves the way for the creation of sovereign annuities under the Sovereign Annuities Initiative scheme introduced by the Government in December.

These products are currently being developed by insurance companies, at which point they will be sent to the Pensions Board for approval.

Conor Daly, a partner at LCP, said the legislation on sovereign annuities and the agency’s bonds, combined with proposed amendments to the pensions funding standard, could “provide a lifeline to many trustees struggling to put viable funding plans in place”.

But he added that trustees should “tread carefully” and make sure they understand the risks involved in any change in their investment strategy.

“There are some rules that still need to be written,” Mr Daly said.

Some schemes may prefer to opt to go to the market and buy 10-year Irish bonds at the current elevated rates of above 8 per cent, he said.

Mr Linehan said the agency did not have a target on how much it expected to be invested in its long-dated bonds.