Quarter four of 2011 saw £8.5bn worth of deals alone – more than
the value of deals completed in the whole of 2010 – the actuarial firm revealed
in its Managing Pension Scheme Risk
Report 2011, published in conjunction with Club Vita.
That burst of deals means insurance companies and banks have taken
on the risks associated with over £40bn of pension scheme liabilities since
2006/07. FTSE100 companies alone have now transferred the risks associated with
over £13bn of scheme liabilities.
James Mullins, partner and head of buy-out solutions at Hymans
Robertson, said: ‘The vast majority of this activity relates to pension schemes
removing risks associated with their current pensioner members, via longevity
swaps or buy-in deals with insurance companies or banks.’
He added: ‘2012 looks set to be as buoyant as 2011 for the pensions risk transfer
market as pension schemes continue to engage longevity swaps and buy-ins.
‘Providers will continue to ramp up their efforts to meet this demand
which is likely to see insurance companies and banks take on a total of over
£50 billion of pension scheme liabilities before the end of 2012.
In particular, Mr Mullins said competition among banks, insurers and
reinsurers was leading to some attractive pricing for removing longevity risk. This
key driver for the recent level of longevity swap activity was continuing to
accelerate, he added.
‘As long as banks and insurers continue to provide a flexible approach
to make these risk transfers feasible and affordable to all pension schemes, we
will see more deals in the pipeline and indeed more insurance companies looking
to enter into this market,’ he said.
According to the report, 10% of UK private sector pension schemes have
now ‘hedged their bets’ in relation to how long pensioners will live by
completing longevity swaps and buy-ins with insurance companies and banks.
Mr Mullins said: ‘One of the most significant risks that UK
pension schemes face is the possibility that pensioners live longer than
expected meaning that pensions have to be paid for longer than budgeted for,
which puts a material strain on a pension scheme’s finances.
‘Life expectancy has been consistently under-estimated over the
last 20 years. To put this into context, if new evidence shows that
pension scheme members are living just one year longer than previously
expected, then this would add around £30bn to the liabilities of private sector