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IPE special report May 2018

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Irish risk reserve could force €3bn in additional pension contributions

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  • Irish risk reserve could force €3bn in additional pension contributions

IRELAND - New risk reserve requirements could force sponsors of Irish defined benefit (DB) pension funds to contribute an additional €3bn towards the heavily underfunded sector, according to the head of Willis Ireland.

Speaking at a conference organised by Attain Consulting, Maurice Whyms - also chair of the Irish Association of Pension Funds - predicted that the money would have to be contributed as a result of the new funding standard guidelines, introduced earlier this year.

"In view of the complexities involved in dealing with deficits, the proposed timeframe for the completion of funding proposals appears particularly onerous," he added.

Whyms noted that the additional requirements came at a time when funds already faced low returns and a falling interest rate environment.

Although Irish DB schemes are allowed to counteract the new risk reserve - meant to offset a decline in interest rates, among other things - with investment in new sovereign annuities, he added that this came with the risk of passing on any future default directly to members.

The new sovereign annuities, underpinned by the Irish Amortising Bond issued by the National Treasury Management Agency (NTMA), is meant to appeal to pension funds by offering a fixed-rate yield of 5.9%, significantly above AAA euro-zone sovereigns.

Anthony Linehan, deputy director of funding and debt management at the NTMA, predicted that the next issuance would potentially see yields fall lower.

"For investors, especially annuity purchasers, the yield of 5.9% is attractive compared with that available from German bonds," he said.

"However, as Ireland's global standing improves, yields on Irish bonds are likely to lower."

He said a further decline in bond yields would likely be helped by breaking the "vicious circle between banks and sovereigns" - referencing declarations by European Union leaders over the summer.

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