Sovereign Annuities

Would you want invest in Irish Government Bonds?
Would you want your pension fund to invest in Irish Government Bonds?
 
Well if you were in a DB scheme with an improved funding position wouldn't transfers out would be more available than was previously the case?
 
I think this topic deserves more attention.

I don't like the lobbying by the government, the IAPF and particularly the Society of Actuaries. They are all working to their own agendas, to solve their own problems with no regard for the needs of the customer.

The government is trying to flog its dodgy bonds any way it can.

The IAPF is trying to spare its own blushes for consistently making a mess of DB scheme funding.

The Society of Actuaries has bizarrely got itself involved, driven by pensions scheme actuaries who are also trying to spare their own blushes after years of messing up DB scheme funding.

Nobody is thinking of the interests of the customer here. With sovereign annuities, any default on the bonds is passed straight to the pensioner.

Trustees of DB schemes need to know the following, holding a low proportion of Irish bonds has left Irish pension schemes in a hell of a lot better condition than would have been the case if they had maintained high proportions of Irish bonds.

There's €17bn of bonds in Irish pension funds. If these had been invested 100% in 10 year Irish government bonds over the past couple of years they would be worth €8bn less. That means everyone with a pension would be over 10% worse off resulting from a decision to invest one quarter of pension funds in Irish Bonds.

Apart from this, the right thing to do is spread default risk by investing in the whole spectrum of euro government bonds in relative proportions. Irish bonds should never be a high proportion of these investments.

Not only this, the government want pension schemes to completely change their investment strategy and redirect the €45bn in equities into Irish government bonds on the basis that Irish government bonds are safer. I think the ratings agencies would beg to differ.

A hollow quote from O' Cuiv to the effect of 'Sure we'll never default' rings very hollow against the backdrop of the current spreads and ratings by the main agencies.

There should be a market for Irish government bonds. They may or may not represent value at their current yields.

They may even represent good value to Irish customers because the form of default possible is Ireland leaving the eurozone and devaluing its new currency. In such a case an investor spending their pension proceeds primarily in the new currency would suffer a lesser impact than those still spending mainly euros.

This, however, does not make it acceptable to invest any significant additional amount of Irish pension funds into Irish government bonds as the increased concentration of risk would be to the detriment of those invested in the pension funds.
 
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