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03

Risk transfer deals 'likely to top £50bn by end of 2012'

Open-access content Friday 16th March 2012 — updated 5.13pm, Wednesday 29th April 2020

The total value of pension scheme risk transfer deals completed since 2006/07 is likely to top £50bn by the end of this year, Hymans Robertson said today.

2

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 pension schemes.'

This article appeared in our March 2012 issue of The Actuary .
Click here to view this issue

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Lack of resources 'is hampering mid-market pension schemes'

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The deficit of the defined benefit pension schemes in the PPF 7800 continued to improve last month, according to figures published yesterday by the Pension Protection Fund.
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Pension valuation rules need 'immediate reform'

The Liberal Democrats have called for ‘immediate reform’ of pension scheme actuarial valuation rules to address the volatility in pension schemes costs.
Tuesday 13th March 2012
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Changes to pension tax 'could have serious implications'

Making any changes to pensions tax relief in tomorrow’s Budget could have ‘serious implications’, according to Friends Life.
Tuesday 20th March 2012
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Webb wants to get people excited about pensions saving

Pensions minister Steve Webb has outlined how he plans to make 2012 ‘a year where we need people to get excited about pensions saving’.
Friday 23rd March 2012
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