IRELAND - Bonds issued by the Irish government are more attractive than ever, as they offer an attractive yield and are issued for a longer period, but local pension schemes are no in a hurry to invest in the asset class.
Speaking at the Global Pension Forum in Amsterdam, Jerry Moriarty, director of policy at the Irish Association of Pension Funds (IAPF), said Irish government bonds had never been considered as a potential asset class for local pension funds as those instruments have always been short-dated bonds.
"Until recently, Irish government bonds were usually issued for a period of 10 years, which means no indexation was built in," he said.
"As a result, Irish annuities did not match local bonds, and pension funds invested in bonds provided by other European governments such as Germany and France, which were issued for a much longer period."
However, the Irish government has been asked by the IAPF and the Society of Actuaries in Ireland to align Irish annuities with Irish bond yields.
In December 2010, the government announced it was launching the option for Irish pension schemes to use sovereign annuities/bonds.
According to Moriarty, those bonds are currently aligned with German bond yields.
The constant rise of the Irish bond yield offers pension schemes the option to spread risk at a time when the pension system is facing an important deficit and schemes might have to cut active member benefits.
"However," Moriarty said, "Even if the legislation has been adopted by the government at the end of last year, nothing has changed in principle due to the risk of a sovereign default."