UK - A growing number of small and medium-sized pension schemes are looking to hive off pension liabilities to insurers.
Prudential M&G and Legal & General (L&G) - which have both seen a big jump in enquiries - claim that FRS17 is a key factor. They claim that finance directors want to reduce risk profiles in a bid to offset the increased balance sheet volatility the new accounting standard will bring.
L&G's director of corporate annuities Dennis Canham predicted the numbers of schemes seeking annuity buyouts will increase again this year, as implementation of accounting standard FRS17 moves closer. Last year L&G received an enquiry from a £10bn-plus scheme. This is believed to be the Lattice Group, which will close its final salary scheme to new members in April.
Prudential M&G, which claims to be the biggest player in the bulk annuity market, said it recognised a trend for small schemes to seek total buyout and for medium-sized schemes to only seek buyouts of its pensioners.
Bulk annuities director Ted Clack said: “Over the last 12 months we have seen our bulk annuity business go up quite substantially, not just for schemes winding up, but those mitigating their investment risk by buying out some of their benefit.”
The largest buyout carried out by Prudential last year was for half the value of a £280m pension fund. Clack said that he knew of several £500m-valued schemes considering it and the driving force behind such decisions was finance directors looking to reduce risk from their balance sheets.
Prudential M&G head of bonds Pam Burgess said: “Some pension schemes are happy to take a bit more risk, because they think it is a more affordable route, while some pension schemes really do not want to keep any risk and can afford to take the full buy out route.”
Burgess added that while there was a healthy market at present for bonds, there were not enough corporate bonds to finance many of the bigger schemes taking the buyout route.
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