Pension funds to buy up to €10bn of annuities

Fri, Aug 3, 2012, 01:00

IRISH PENSION funds may buy up to €10 billion of sovereign annuity bonds over the next three years, said Zurich Life Assurance, the first insurer to get regulatory clearance to sell such products.

Brendan Johnston, pensions director at Zurich Life, told Bloomberg there would be demand for between €3 billion and €10 billion of sovereign annuity bonds.

The National Treasury Management Agency may seek initial demand for about €100 million of sovereign annuity bonds before issuing them over the coming months, said Mr Johnston.

The State may issue between €3 billion and €5 billion on the new debt instruments, including these annuity and inflation-linked bonds over the next 18 months, the NTMA said last month.

The annuity bonds, which pay a steady stream of principle and interest to investors, will have maturities of between 15 and 35 years.

The demand for sovereign annuities may be high given that they could help pension funds fill deficits by offering a higher rate of return than German bonds.

Legislative changes allow the NTMA to sell annuity bonds to help meet the State’s remaining funding requirements of €26 billion for 2013 and 2014. The State raised €5.2 billion in a return to the long-term bond market last week.