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Impact Investing

IPE special report May 2018

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Aegon and UBS form UK buy-out team

UK - Swiss banking major UBS is the latest investment bank to weigh into the lucrative bulk annuity market in a new buy-out joint venture with Dutch insurer Aegon.

The joint initiative of UBS Global Asset Management and Aegon's UK business will offer a pension buy-out service to UK final salary pension schemes with liabilities of more than £300m (€439.4m), the firms have announced.

Under the name UBS Aegon Affordable Risk Transfer Solution, the firms say they aim to offer a solution tailored to a pension fund's strategy, for a more affordable risk transfer.

"Compared to traditional buy-out, it defers the buy-out of more expensive liability tranches and creates the opportunity to generate returns," said UBS and Aegon in a joint statement.

"This increases the probability of lower overall costs and makes risk transfer more affordable for partially funded plans," they added.

UBS will focus on asset and risk management, while Aegon will focus on liability and longevity management and administration.

Both parties have already held joint talks with potential in their bid to tap into the lucrative bulk annuity market which already  has Paternoster and Goldman Sachs as competitors.

Elsewhere, it appears UK final salary pension schemes are in surplus for first time in six years.

A study by Aon Consulting shows there is an aggregate UK pension accounting surplus for the first time since the FRS17 accounting standard was introduced in June 2001.

This development has arisen mainly because higher interest rates have pushed up bond yields, the benchmark measure of pension scheme deficits for accounting purposes, Aon argues.

"There has been a remarkable degree of volatility in the aggregate deficit over the last three months, commencing with the largest single day increase in pension deficits of £11bn after market turmoil in China on February 27," the consultant said.

At its recent peak, the aggregate deficit stood as high as £50bn in March 2007 and the aggregate deficit for the largest 200 pension schemes has cleared, while equivalent figures for FTSE100 companies also show an improvement to a surplus of £1bn.

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