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The Actuary The magazine of the Institute & Faculty of Actuaries

Affordability boosting pension buyouts

Pricing and affordability are at their most attractive level since 2008 for companies looking to insurance buyouts as the next phase of de-risking pension plans, according to a report by consultants LCP.

As the buyout market reaches its fifth anniversary, the LCP Pensions Buyout 2011 report found that pensioner-only buy-ins remain the most well-established insurance solution, and momentum is being generated by a jump in the number of pension plans closed to future accrual - from 7% to 17% during 2010.

Competition between providers is also driving keener pricing - five insurers each wrote business exceeding £700m in 2010, and LCP notes that overseas markets are growing, with Ireland and the Netherlands offering particularly attractive buyout opportunities.

The consultant also believes that the potential threat of insurance rules under Solvency II being extended to pension plans will only accelerate the transition of pension plans to insurers.

"We now have all the right ingredients for the market to move up a gear," said Clive Wellsteed, partner at LCP. "With nearly one in five DB pension plans now closed to future accrual, the insurance market offers a real solution for plans looking to reduce risk and safeguard member security. At the same time rising funding levels are shrinking the gap to full buyout and it’s now looking increasingly attractive for companies to write that cheque and buy out their pension plans in full."

The full report is available for registered download