Aon Hewitt has said existing conditions in the bulk annuity schemes mean the time is right for UK defined benefit schemes to move £200bn currently invested in gilts for buy-in purposes.
The switch of funds could secure a better match for pensioner liabilities, reduce risk and insure against the rising life expectancy of 40% of the schemes' pensioner liabilities, the consultancy said today.
Paul McGlone, a member of Aon Hewitt's risk settlement group, said: 'Aon Hewitt's Bulk Annuity Market Monitor shows that it is currently a good time for pension schemes holding gilts to get an even better match with their liabilities by undertaking a pensioner buy-in.
In doing so, trustees can close out some of their longevity, investment, inflation and interest-rate risk by securing an income stream from an insurer which matches outgoing pension payments.
Mr McGlone said that while buy in were not right for all schemes - particularly those already holding gilts - for most they were an important step in de-risking.
Despite this, a recent survey carried out by Aon Hewitt found that only 24% of medium-sized UK DB schemes were considering implementing a buy-in and only 2% had already done so.
Martin Bird, managing principal at Aon Hewitt and head of its risk settlement group, emphasised the importance of timing for schemes considering a buy-in. Pricing can be volatile relative to the value of the scheme's assets, he said, which mean a trigger mechanism should be used if the pricing was not initially at an acceptable level to ensure that, if conditions change, the opportunity isn't missed.
'It also does not matter if the pension scheme has insufficient gilts to match all the pensioners, as there are a number of ways to insure a tranche of the pensioner group in the scheme, thus enabling the removal of a significant slice of the longevity risk,' he added.