€1bn of Irish pension cash in Italian bonds

IRISH pensioners are exposed to further volatility in the bond markets, with experts estimating that more than €1bn of Irish pension money is tied up in Italian bonds.

Although Italian bonds rebounded on Friday, analysts said concerns remained about political stability in the country despite the fact that anti-establishment parties managed to hammer out a coalition deal, apparently averting elections.

The rise of the two popular parties in Italy — the Five Star movement and the League — has sparked fears of a Greek-style debt crisis in the eurozone’s third-largest economy.

Despite attempts to allay concerns, fears remain that a Five Star-led government may edge the country closer to exiting the euro.

According to pension and investments consultants Mercer, defined benefit schemes tend to have large allocations to eurozone government bonds, potentially including Italian government bonds.

Paul Kenny, head of investments at Mercer, said: “We believe there could be over €1bn of assets in Irish defined benefit pension schemes invested in the Italian bond market.

“This means political instability in Italy is more than just a spectator sport for Irish investors: we have skin in the game, both in terms of direct investments in Italian bonds and the risks posed by the impact of the crisis on broader European markets.”

Mercer said that defined contribution schemes typically offer members a bond fund as an investment option, and these bond funds may also have an exposure to Italy. This could be an issue for members of DC pension schemes who are near retirement and want to purchase an annuity.

Kenny said that since the financial crisis the ECB has put systems in place to help limit contagion but added this week has been a reminder that “a constant reassessment of risk exposure is needed to minimise losses from political events of this nature”.