Pension scheme buyout market yet to take off

The pensions buyout market for defined benefit (DB) schemes remains stagnant, with no expansion taking place in the last six months.

Aon Consulting’s first Quarterly buyout market survey, which analyses the volume of cases being placed and the number of quotes being requested, found that over the last six months, there has been little sign of increased volumes of cases being placed and those that have gone ahead have been on average, relatively small.

The survey compared figures from the first two quarters of this year to the average quarterly performance in 2006. It found that the number of cases placed in the first two quarters of 2007 was lower than in the average quarter of 2006, although the total value of business placed was much the same compared to last year. The average value per scheme remains low at £4 to £6m.

There has also been low take-up of partial or phased buyouts, or on a risk-share bases which providers are championing as offering some flexibility.

Paul Belok, principal and actuary at Aon Consulting, said: “Despite the hype around the buyout market and its expected growth, the market is still to prove itself. The figures from 2006 and the first half of 2007 show clearly that there has yet to be a discernable increase in business being placed, and even with the introduction of more flexible options, few pension schemes are at present seeing buyout as realistic and affordable. And although the average size scheme quoted for is around £40m, the average size scheme actually placed is only £4m.”