US/UK – A US buyout market to rival the UK’s is not likely in the short term because of competing mindsets among the countries’ policy makers about the future of defined benefit systems – US officials still have faith.
A recent report by Boston College's Center for Retirement Research said: "While US plan sponsors face many of the same burdens as their UK counterparts, the development of a UK-style insured buyout market in the United States is unlikely, at least in the short- to medium-term. This assessment is primarily because US policymakers believe private DB pensions are salvageable."
A pension buyout allows companies to transfer the risks associated with a defined benefit plan from the trust set up to administer the scheme to an insurance company, in exchange for a premium payment..
In the UK, buyouts were traditionally used for insolvent companies, the report said. But after new accounting rules and funding regulations were introduced in 2005, solvent companies began turning to buyouts as an easier and cheaper alternative to adhering to the new regulations
Meanwhile in the UK, "DB stakeholders have accepted the plans' decline as inevitable and are now promoting alternative mechanisms to shore up retirement," the report said.
This view was echoed last week by chairman of the UK-based National Association of Pension Funds Lindsay Tomlinson when he said defined benefit schemes will die unless a way to address the risks of provision can be found.
Speaking at the Lane Clark & Peacock Annual Pension conference in London last week, Tomlinson said: "Residual DB schemes remain of massive importance, but we promised more than we can deliver. We need strategies for an orderly exit for private pension DB schemes."
But researchers at Boston College found US officials took a much different view. The College said US policymakers viewed buyouts as a threat to the DB system.
One unnamed policy maker told the Center: "We don't want to do anything that is going to make it easier for plan sponsors to dump their DB pensions."
Another said: "I'm not sure I want to give employers and easy out. How does that preserve the DB system?"
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