The value of pension funds being offloaded by employers to insurance firms has grown seven-fold in the six months to 31 March 2008, compared to the previous six months.
Companies such as TI Group, Rank, P&O and Emap all completed buyout transactions on their defined benefit pension schemes in the six months to 31 March, with many more employers planning to offload all or part of their defined benefits pensions scheme risk.
As many as ten FTSE 100 companies are currently looking to transact buyout deals on their pension schemes. “Some insurers estimate a total pipeline of £25bn,” said Clive Wellsteed, partner at Lane Clark & Peacock (LPC)
In its report, Pension Buyouts 2008, actuarial firm Lane Clark & Peacock, predict that the buyout market will grow to £10 billion in 2008, which is three to four times the size it was in 2007.
The number of insurers offering buyout services has grown since mid 2006, from two to 11. This increased competition and the recent rise in corporate bond rates has brought down costs of buyouts for employers.
“LCP sees the decision of whether to pass risk to an insurance company through buyout as simply a question of timing,” said Wellsteed.
“Most defined benefit pension schemes are closed to new members and were already expecting to buy out with an insurer in the long term – favourable pricing now provides an opportunity to transfer some or all of the risk away much sooner. It’s not a question of if these schemes will buy out, but simply a question of when.”
However he warned that a buyout transaction is a very resource intensive process, the way it is communicated to staff is crucial.