The service reflects the actuarial company’s belief that
tracking the price of various forms of pension scheme risk transfer options is
vital to ensuring trustees, pension managers and finance directors understand
when it is the right time to do a deal and which type of deal best meets their
partner and head of buy-out solutions at Hymans Robertson, said: ‘A buy-in
represents an excellent hedge to the risks faced by a pension scheme and is
sometimes overlooked as an alternative to gilts or a liability-driven
investment strategy. Different insurers price buy-in differently and relative
pricing fluctuates over time.’
According to Hymans Robertson, schemes considering using
gilts to fund a pensioner buy-in exercise could currently see ‘significantly’
more value in their transaction than would have been the case a year ago.
Buy-ins are particularly well priced at present for mature schemes with lots of
older pensioner members, it added.
Mr Mullins explained that poor performance from equities
over the course of 2011 had moved schemes further away from buy-out plans.
Equity rallies in the last three months of the year were only able to keep
track of the increase in buy-out premiums caused by failing yields.
In contrast, current dynamics in buy-in prices offer an
‘interesting opportunity’ to increase efficiency in hedging strategies, he said.
‘Schemes should investigate them,’ he added.
Generally schemes hold government gilts, or other
‘matching assets’, to broadly match some of the pension payments they expect to
pay out. These assets would typically be used to meet the cost of buy-in.
‘The good news for pension schemes is that, whilst the
cost of a buy-in will have increased in absolute terms as a result of the fall
in long-term interest rates, the cost of a buy-in relative to the value of
these matching assets is likely to have fallen quite significantly,’ Mr Mullins
‘Indeed, current market conditions and pricing mean that
the cost of a buy-in that insures older pensioner payments will often be
cheaper than the value of government gilts or a liability-driven
investment strategy to broadly match the
same pension payments.’
A scheme could, he said, sell £100m of gilts providing
only a reasonable match for pensioner payments and at the same time buy a
buy-in policy for £98m that provides an excellent match for the same pensioner
This would reduce risk and improve the pension scheme’s
balance sheet position at the same time, Mr Mullin explained, providing ‘a
great result for trustees, sponsoring employers and, most importantly, pension