THE number of companies selling their pension schemes to insurers is set to rise sharply, a new report has claimed.
The pension buy-out market could reach £10 billion this year, a fourfold rise on 2007, with more large companies considering off-loading their pension liabilities, according to actuarial consultants Lane Clark & Peacock (LCP).
The buyout market a
ccounts for only 1 per cent of all the assets in private sector final salary schemes, and LCP believes the potential for growth is huge.
Buy-outs have become more commonplace as employers seek to cut the rising cost of funding final salary (or defined benefit) schemes and offload the risks of the scheme's investments underperforming. Typically, the company pays an insurer a one-off fee to take on the running of its pension scheme, usually closed to new members. In return for the assets, the insurer agrees to pay pensions to the scheme's members.
The rise in buy-outs has also been fuelled by the credit crunch, as higher yields on corporate bonds and other investments have allowed insurers to reduce prices, creating an in
With most final salary schemes now fully funded for existing pensioners and closed to new members, insurers do not face the additional cost of topping up the funds.
The LCP report said at least 10 FTSE 100 companies were looking into transferring pension liabilities in the next few months, following firms including Emap and P&O, the latter buyout worth £800 million.
"Now the question is can insurers keep pace with demand from companies and trustees," said Clive Wellstead, author of the report. "The decision on passing risk to an insurance company is a question of timing. Most defined benefit schemes are closed to new members and were expecting to buy out with an insurer in the long term."
The full article contains 310 words and appears in The Scotsman newspaper.
