UK - UK pension schemes are increasingly considering buy-ins and buyouts as part of their de-risking plans, and insurance companies have thus adapted their products to better match pension liabilities, according to LCP.

According to Charlie Finch, partner at the consultancy, many UK companies have already closed their pension plans to future accrual, so many pension schemes are now looking at buy-in and buyout options to transfer their risk.

Speaking at the Global Pensions Forum in Amsterdam, Finch said: "In late 2008, trustees became more cautious about how to reduce their pension plans' liabilities.

"Pension schemes in the UK invested traditionally in equities and bonds, but the financial crisis told them they had to find new options."

The risk was then been split between insured liabilities (covered by insurance policies) and residual liabilities (covered by equities and bonds).

"As a result," Finch said, "we are now seeing much more sophisticated insurance products, which are driven by the demand from pension plans but also by the competitiveness between insurers."

Buy-in transactions remain an attractive option for pension plans as they hedge longevity, inflation and investment risk for the liabilities covered and ensure equitable treatment of plans' members.

Insurance products are also now more affordable for pensioners, costing 0-5% above the funding reserve.

Also speaking at the Global Pensions Forum, Martin Mannion, director of pensions finance and risk at GlaxoSmithKline, said: "Our company's pension plans wished to reduce longevity and inflation risk as part of a wider UK de-risking strategy.

"We then decided at the end of last year to increase life insurance products with income stream that fully matches all future pension payments and which offered competitive prices.

"Insurance products also offered our pension plan robust security protections to minimise counter-party risk and a contract to stay under the FSA jurisdiction or other European regulators." 

In a recent report, LCP predicted buyouts would overtake less costly buy-ins as pension funds wrestled with legacy issues.

 

Topics