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Irish Life Plans to Introduce Sovereign Annuity Via NTMA Bonds

Irish Life & Permanent Plc is in final preparations for the introduction of the country’s first sovereign annuity product for the pension market.

“The company hopes to launch the new annuity by the summer subject to final agreement with the National Treasury Management Agency,” the Dublin-based company said in a statement. “The new product will be manufactured using new bonds issued by the NTMA for the Irish pensions industry.”

Defined-benefit retirement plans guarantee their payments by buying annuities that typically invest in top-rated German bunds. Irish pension managers have been lobbying the government to let them switch to annuities tied to lower-rated local securities that offer high yields in a bid to repair deficits.

Moody’s Investors Service cut Ireland’s credit rating to junk in July, while Standard & Poor’s rates Ireland as BBB+. Ireland’s October 2020 bonds yield 7 percent, compared with a yield of 1.81 percent on an equivalent German bond.

“Sovereign annuities will be significantly cheaper than traditional annuities for pensioners and will have the added bonus of providing a new source of funds for the state,” David Harney, chief executive officer of Irish Life’s corporate unit, said in the statement.

Ireland stepped out of bond markets and sought an international rescue in November 2010 amid concern a banking crisis would push it into bankruptcy. The National Treasury Management Agency, which manages Irish debt, was unavailable to comment on the pension initiative, a spokesman said.

“It’s too early to tell the impact, it depends on how much demand the product generates,” said Michael Cummins, an analyst at Glas Securities, a Dublin-based fixed-income firm. “But any market funding is positive, so it has to be seen in a positive light albeit not one that suddenly saves the day.”

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