Paternoster launches quarterly buyout affordability index

The buyout provider’s index revealed the cost for securing a defined benefit pension scheme dropped by 8% in the first quarter of 2008 – but rose by 3pc during April.

The cost of securing a typical group of deferred member liabilities fell by 10pc during the first three months of the year and the price of buying out pensioner members dropped by 6pc.

Paternoster chief executive Mark Wood explained: "The cost of securing liabilities with an insurer during the first quarter has dropped as a result of credit spreads widening, which more than offset the moves in the gilt yield curve.

"During April however buy-out became more expensive due to the growing perception that liquidity was slowly returning to credit markets. As a consequence we saw spreads tightening."

He added that movements in the market could have a considerable impact on the cost of securing liabilities.

He said: "Trustees and their sponsoring organisations should focus on this as they manage their process of evaluating a buy-out. The cost of ‘missing the market’ could be considerable."

The analysis for the index is based on Paternoster’s experience of pricing a typical defined benefit scheme – and reflects a profile based on the age and gender of scheme members and their benefits.

It said it would publish its analysis shortly after the end of each quarter – showing the cost of securing liabilities for the pensioner and deferred members sections of a pension scheme.