After much talk over the past 2 or 3 years, at last sovereign annuities have become a reality… nearly. This week, I was one of the speakers at the launch of the first sovereign annuity approved by the Pensions Board. Getting to this point is a major milestone in the long journey towards being able to use sovereign annuities. We are not quite there yet though.
One of the speakers at the launch was Anthony Linehan of the National Treasury Management Agency (NTMA). The view in the industry is that sovereign annuities are most likely to be backed by Irish sovereign bonds. Mr Linehan gave a very interesting presentation on the bonds which the State will issue to back sovereign annuities and the process for issuing and pricing those bonds.
It seems that the State will issue what are being called ‘amortising bonds’. These are bonds which will pay out equal annual payments which are made up of a coupon payment and part of the principal which would usually be repaid at the expiry of the bond. They are ideally suited to sovereign annuities.