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  • December 2012
12

Pension buyout activity accelerated in third quarter, says JLT

Open-access content Monday 10th December 2012 — updated 5.13pm, Wednesday 29th April 2020

A total of £2.5bn worth of pension buyout deals have been finalised so far this year, after the third-quarter saw de-risking activity accelerate, JLT Pension Capital Strategies said today.

According to the consultancy's latest analysis of pension fund buyouts, in the three months to the end of September, more than £900m of buyout business was transacted. Buyouts involve insurers taking over responsibility for meeting the pension promise made by a fund.

The larger deals completed were mainly pensioner buy-ins, JLT noted, with the largest being the £320m agreement between materials science company Cookson and Pension Insurance Corporation which was finalised in July.

After a slow start in the first three months of the year, the next six months saw buyout activity increase markedly, and JLT now expects a 'healthy' number of further transactions to be completed during the rest of the year.

In particular, it expects deals at the small and medium end of the market as insurers continue to offer flexible contract structures and payment terms to pension fund sponsors and trustees.

But, based on the first nine months of the year, it still expects overall 2012 business levels to be lower than in previous years.

Martyn Phillips, director and head of buyout consulting at JLT, said that schemes with a good match between their assets and liabilities could still take advantage of de-risking opportunities.

'Whilst low yields have led to higher absolute prices compared to 12 months ago, schemes with significant gilt holdings will have seen significant growth in assets, so that the affordability of the buyout route may actually have increased over the period,' he explained.

'These well matched schemes are expected to continue to consider opportunities to de-risk via the purchase of a bulk annuity.'

Phillips added that JLT expects the demand for bulk annuities to increase once the European Commission publishes the results of its quantitative impact study on plans to revise European pensions legislation. The results of the study, which are expected by March 2013, could result in schemes being subject to capital requirements similar to those being introduced for the insurance industry.

This could make defined benefit provisions so expensive to meet that bulk annuity prices would become cheaper in comparison, he added.

This article appeared in our December 2012 issue of The Actuary.
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