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The Actuary The magazine of the Institute & Faculty of Actuaries

Competition in buyout market ‘unlikely’ to reduce prices

Companies required to purchase annuities in winding up a pension scheme should not expect significant cost savings despite the new entrants to the bulk annuity market, actuaries Punter Southall has said.

Recent new entrants such as Mark Wood’s Paternoster and Isabel Hudson’s Synesis (see also previous story) [together with giants AIG and Aegon – Editor” have disturbed the stranglehold exercised by Prudential and Legal & General, which dominated the buyout market until recently. But Punter Southall dismissed the notion that companies would rush to these new providers as pure speculation. ‘We do not expect significant savings to arise, although smaller schemes may get a more proactive service than is currently available in the market’, said the firm. And as the FSA’s regulatory regime tended to preclude significant changes in pricing, the face of the market was unlikely to expand from ‘forced buyers’ to voluntary customers, it added.

But the combination of increased regulatory pressure on pension schemes and the ever-growing interest from international players means the market is set to flourish. Punter Southall noted that companies with defined benefits pension schemes were now devoting more time to managing their schemes and faced more reasons than ever to identify ways to eliminate their pension promises. ‘With over £300bn of FRS17 liabilities in the FTSE 100 alone there is certainly room for more options in the marketplace’, said the firm.