Ireland plans to entice its senior citizens to invest in Irish bonds through their pension plans. If it succeeds, it could avoid having to seek a second bailout—although sales of bonds to such “captive buyers” are not as positive as if they were snapped up on the open market.
Bloomberg reported Thursday that Prime Minister Enda Kenny hopes to put Ireland back on firmer financial footing, and part of his plan is to make it easier for pension plans to invest in Ireland’s own sovereign bonds instead of the top-rated German Bunds they customarily purchase. The government is discussing ways to encourage pension managers to switch to annuities that depend on lower-rated, higher-yielding securities—like Irish bonds.
Irish sovereign debt with a maturity date of 2020 currently offers a return of 8.8%, compared with a 2% return for similar German Bunds of like maturity. Those higher rates of return could also help pension plans that are underwater. Aer Lingus Group Plc said in January that it would consider such a plan to help cut its deficit, saying, “These measures seek to preserve a higher level of pension benefit for members than would be the case if the scheme were wound up, which Aer Lingus believes is inevitable in the absence of corrective action.”