GERMANY - The German market could prove "attractive" from a buy-out perspective given the relatively low regulatory barriers and growing interest in buy-outs across Europe, according to Deutsche Bank.
“People in other European countries are asking about buy-outs, they want to know whether it would be an option for them,” said Rashid Zuberi, MD, European insurance and pensions group at Deutsche Bank.
“But local legislation is going to prove vital in terms of increased demand. In Germany, for example, the regulatory framework could make it attractive. It certainly is one of the countries where there is interest, but are we going to have Paternosters in Germany? Who knows, it’s too early to say.”
In the UK, buy-out vehicle Paternoster recently anno-unced it had taken on the pensions assets of the Cuthbert Heath Family Plan (CHFP) in a deal said to be worth around £10m.
Mark Wood, Paternoster chief executive, said the plan was one of five schemes whose members’ benefits had been secured with the firm since it received FSA authorisation on 27 June 2006, but added this was the first deal where the assets had been transferred.
Yet despite the growing interest, some critics believe the market for pension buy-outs is being largely overestimated.
“There is a lot of hype, and I can't help but feel the market has been radically misestimated in terms of the size of the opportunity,” said Con Keating, principal at The Finance Development Centre. “The headline number people quote is £900bn in bulk annuities potentially available, but that number is incorrect as it would imply so many were going to go down that route. Realistically, the market could become worth between £15-20bn.”
Keating also pointed out that buy-outs were predicated on there being growth in the market, and asked: “Are these animals really going to be around for the 50-70 years that pensions schemes are? I doubt that. And I am intensely sceptical of new entrants into this market.
“It doesn’t matter whether these firms had AAA credit ratings today, what we need to know is how they are going to look in 20 years’ time.”
More needs to be done to speed up DB to DC transfers but, as Jonathan Stapleton says, more also needs to be done to protect members.
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