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Irish consultants lament 'very tight' deadline for new funding proposals

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  • Irish consultants lament 'very tight' deadline for new funding proposals

IRELAND - Consultants in Ireland have lamented the "very tight" deadline facing pension funds for submitting revised funding proposals in the wake of the Pensions Board announcing schemes must submit proposals by the end of the year.

Reacting to the Pensions Board's publication of statutory guidance on the revised funding standard, consultancy LCP also highlighted that while schemes may have several ways to offset increased capital reserve requirements, any such strategy needed to be sound on its own merits.

It further cautioned schemes of the administrative burden that came with any strategy to offset the new capital requirements - which will force funds to hold capital the equivalent of 15% of liabilities, as well as assets able to offset a 0.5% change in interest rates.

Ireland's defined benefit (DB) schemes will be allowed to hold sovereign annuities or debt of any European Union nation in lieu of increased capital reserves, but the purchase of sovereign annuities must be agreed by resolution, with scheme members informed of the decision prior to the submission of the funding proposal, due at the end of the year.

In a statement, LCP warned: "Any decision to purchase EU sovereign bonds and/or purchase sovereign annuities will need to stand up on its own merits."

"The requirement for a written resolution together with the disclosure requirements may limit the extent to which trustees will use this route to seek relief on the statutory Funding Standard," it added, saying that funds were best advised to consider the matter "immediately".

Michael Madden, partner in Mercer's Ireland practice said that one of the problems facing schemes was that the Pensions Board had yet to issue any licenses for the issuance of sovereign annuities.

"One of the things the insurance companies have been waiting for is the long-dated Irish government bonds to be issued by the National Treasury Management Agency (NTMA).

"The longest bond at the moment is too short to match their annuity books," he said, noting that previously German bunds or French OATs were used.

Madden added that the current situation was a "chicken and egg" scenario, with the NTMA waiting on issuance until insurance companies ordered a specific volume of the bonds - as the debt would be issued on demand, circumventing the traditional auction approach.

He said that issuance was nonetheless expected in September. "Presumably, Irish insurers won't be able to launch sovereign annuities linked to Irish bonds until after that time."

A spokesman for the Pensions Board told IPE there had been expressions of interest from a number of suppliers and that it was "actively looking at one or two", but that none had been approved to date.

Irish Life & Permanent has previously expressed an interest in issuing the annuities, but a request for comment went unanswered at time of publication.

Meanwhile, the Society of Actuaries in Ireland was highly critical of the regulator's long-delayed statutory guidance, branding the new regulatory regime "disappointing" and saying it fell short of what was expected, with an opportunity to implement "major" reforms missed.

In a statement, it added: "At a time when the financial pressures on pension schemes continue to intensify, with the cost of annuities at an all-time high, there is a very real risk that the new regulatory framework will not be perceived by employers and trustees as facilitating an orderly transition to a sound and sustainable financial position and that large numbers of pension schemes may wind up in the near-term."

It went on to say that it remained urgent to implement further reforms, such as legislation that currently grants pensions in payment absolute priority over benefits accrued by active or deferred scheme members.

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