Spotlight - Aviva

Pensions Spotlight 2012in sovereign annuities because the counterparty risk could then pass on to pensioners or thescheme would be exposed to the risk of default on the sovereign annuities.Trustees could alternatively invest directly in the amortised bonds issued by the Irishgovernment rather than invest in sovereign annuities backed by such bonds. In this waythe scheme would still benefit from the higher return by the Irish government bonds,and hence reduce their pensioner liabilities, but without exposing pensioners directly tothe counterparty risk. However the scheme continues to hold the longevity risk in suchcircumstances.Sovereign annuities or amortised bonds do not magic away defined benefit occupationalpension scheme liabilities; they can reduce scheme liabilities but only in return for higher riskwhich may, in some cases, be passed on to pensioners.Page 4