Irish Pensions Magazine Autumn 2013
12
members also introduces further uncertainty about
future government policy. The recent announcement
of a continued pension levy (and a “double levy” in
2014) is likely to further this impact.
Sovereign Annuities
Sovereign annuities have been available in the
marketplace since the start of 2013. Irish Life have
led the way in bringing this new product to the market.
Indeed Irish Life closed the first sovereign annuity
deal which concluded earlier this year. The transaction
process is now fully bedded in and there is a seamless
process in place to move through to deal execution.
There are three active providers offering sovereign
annuities in the marketplace. All providers link their
sovereign annuity product to Irish Sovereign debt –
by using special bonds called Irish Amortising Bonds
issued by the NTMA. These bonds trade at a spread
to AAA bonds and as a result sovereign annuities are
available at a discount to conventional annuities. The
current discount range is 10% - 12% (the discount
varies from scheme to scheme).
The chart below details the movement in the average
sovereign annuity discount (where the discount is
to conventional annuity terms) and the yield on Irish
Amortising Bonds (IABs) over 2013.
This discount means that sovereign annuities are a key
tool in restructuring troubled defined benefit schemes.
They have accounted for approximately 75% of the
bulk annuity business placed in the market so far this
year. They have generally been used in two different
ways:
• Purchased as part of the wind-up of an underfunded
scheme to increase the level of coverage for active
and deferred members.
• Purchased as part of a scheme restructuring
exercise, in conjunction with agreeing a long term
funding plan (and often tied in with a Section 50
application).
The initial sovereign annuity transactions included
some level of a conventional annuity under-pin (referred
to here as a mixed product). For example, where the
first €5,000 of annual pension is secured by means
of a conventional annuity with the balance above
this being secured by means of a sovereign annuity.
However most of the latest transactions completed in
the marketplace have been a full sovereign annuity
basis.
This progression over the year is illustrated in the
table below (all figures in €M’s):
Based on Irish Life data for bulk transactions only
Pensioner reaction to date has been very calm. Once
pensioners see that there pension is continuing as
before, they are generally relived. Ensuring good
communication and smooth service transition is critical
to achieving this however.
What information is required for a bulk annuity
quotation
The items below are required in order to complete
a fully guaranteed quotation. Irish Life can provide
indicative terms based on partial information at an
earlier stage in the process. We would encourage
trustees to keep their pensioner records up to date, to
give them flexibility around transaction dates, as we
have noticed this data collection process can often
take much longer than anticipated when it’s required.
• Individual pensioner data
• Scheme benefit specification
• Scheme specific mortality data for large schemes
(if available)
• Industry or occupation background
Product
Type
Q1
2013
Q2
2013
Q3
2013
Overall
Sovereign €64
€129
€144 €338
Conventional €26
€8
€59
€92
Mixed
Product
€104
€6
-
€110
Total
€194
€143
€203 €540
Article Author
Shane O’Farrell
Executive Manager-Risk and
Longevity
Irish Life Corporate Business
News
