Pension buyout market 'to halve this year'
But more companies will seek to transfer pension
scheme risk, a report predicts
Fewer companies will transfer their
pension scheme liabilities to insurers this year as
employers currently find deals too expensive.
The annual report on the pension scheme liability buyouts
from actuarial consultants Lane Clark & Peacock
shows that the number of deals in the first three months
of 2009 fell sharply, following the collapse of Lehman
Brothers last September and the resulting rise in corporate
bond yields.
LC&P expects the market for transferring pension
scheme risk to an insurer will halve to £4 billion this
year from £8 billion in 2008. But it says the fall will
be temporary as more employers seek to offload pensions
risk is higher than ever.
Activity is forecast to revive as financial markets
stabilise. The firm says the market should at least
regain last year's levels in 2010, but could rise more
steeply to £12 billion if there is a stronger economic
recovery. Demand for buyouts is also likely to spread
from the UK to continental Europe.
''After the explosive growth in pension buyouts last
year, the financial crisis has slammed on the brakes
for now,'' said Charlie Finch, a partner in LCP's buyout
practice.
As buyout deals may be too expensive for some, pension
schemes' sponsors will review other options to cap their
pension-related risks. This should mean longevity swaps,
which insure the risk that scheme members live longer
than expected, will become more popular, says LC&P.
Last month engineering and defence company Babcock
International became last month the first to launch
a longevity swap programme to hedge £500 million of
longevity risk.
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