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Irish Pensions Magazine Autumn 2013
W
ith the world of defined benefit pension schemes
changing at pace, 2013 has seen a significant
increase in the bulk annuity buy-out activity. Irish Life’s
market data reveals there has been over €540M of
bulk annuity business transacted in the Irish market to
end of Quarter 3. This is a three-fold increase in activity
compared to the 2012 total. What might surprise some
not close to the market is that approximately 75% of
the bulk annuity business transacted so far this year
has been on a sovereign annuity basis.
For those not familiar with the product, a Sovereign
Annuity (SA) is a special type of annuity whereby the
payments are linked to the performance of specified
government bonds. All the Sovereign Annuities in the
market currently link to Irish Amortising bonds (IABs),
special longer duration bonds brought out by the
NTMA specifically for this purpose.
As these bonds are only issued in large scales on
demand by the NTMA, SAs are only currently available
for bulk scheme wind-ups and not to individual
customers, although the legislation permits them
in principle in respect of any Occupational Pension
Scheme, Defined Benefit (DB) or Defined Contribution
(DC).
Boom in activity in 2013
The 2013 activity (to end Sept) has been spread over
30 different defined benefit schemes, with some large
schemes (€100m+) making up the overall numbers.
The restructuring and de-risking of defined benefit
obligations is a current hot topic for all companies
throughout Ireland and insurance solutions are a key
part of this risk management process.
The chart below tracks total market sales for 2012 and
2013 year to date (based on Irish Life’s information of
all market tenders closing in the time period)
Drivers of Increased Activity
• Reintroduction of the Funding Standard
• Availability of Sovereign Annuities
• Attractive Pricing versus Accounting Liabilities
• Pensions Levy
The key drivers of this activity are the reintroduction
of The Funding Standard and the availability of
Sovereign Annuities. The 30th June 2013 Pension
Board deadline for the submission of funding plans
has resulted in a lot of employers taking corrective
action in relation to their pension scheme deficit.
Many underfunded plans have wound-up over the past
few months when faced with the reality of the future
funding requirements. However the activity is not
limited to schemes going through a wind-up exercise.
Several sets of trustees have used an annuity buy-
in / buy-out as a first step in de-risking their defined
benefit obligations.
The restructuring of defined benefit schemes is a key
consideration for all companies throughout Ireland
(where they are present). These schemes are a real
influence on P+L and controlling and understanding
their impact on financial accounts is a key challenge
for finance directors.
The recent fall in corporate bond levels and resulting
rise in accounting liabilities means that transaction
pricing is now very attractive from a corporate
accounting perspective. This is particularly the case for
a full sovereign annuity transaction. Google “
Mercer
Pension Buyout Index
” for further details.
The pensions levy, while not an over-riding
consideration, has a very real impact on the asset
position within already underfunded defined benefit
schemes. We have seen a spike in activity each year
just prior to the levy deduction date. The European
Court ruling relating former Waterford Crystal scheme
Massive Growth In Bulk Annuity Buy-Outs
by Shane O’Farrell
News
