UK - The 200 largest privately-sponsored UK pension schemes had an aggregate surplus of £11bn (€14bn) at the end of March, as a 7% rise in corporate bond yields helped offset the impact of falling markets, Aon Consulting has revealed.

Latest figures from the Aon200 index showed the aggregate pension scheme surplus, on a FRS17/IAS19 basis, has increased 141% from a deficit of £27bn in March 2007, to a surplus of £11bn at March 31 2008, although this is a fall from the £17bn surplus recorded in February.

But in addition to cushioning the impact of market volatility, Aon claimed the rise in corporate bond yields is providing pension schemes with an opportunity to buy out their liabilities at a cheaper rate than before.

It said competition in the bulk annuity market has led to a number of insurers pricing their solutions in relation to anticipated returns form corporate bonds, so as yields have increased, the cost of buying-out liabilities is now looking more "attractive" for pension schemes.
Aon claimed, for example, since March 2007 the cost of pensioner buyouts has fallen by 10-15%, while on deferred pensioners this has dropped by as much as a quarter, which means for many schemes the current cost of buying out pensioner liabilities is likely to be close to - and in some cases below - the scheme's funding liabilities.

Marcus Hurd, senior consultant and actuary at Aon Consulting, pointed out a wide range of financial management techniques have been developed over the last few years to help companies manage pension scheme risk.

He claimed the "panacea" for many companies has been to "extinguish" pension scheme liabilities by passing them to insurers at a reasonable price as until recently, Hurd pointed out, the price has been "prohibitively expensive".

But he added: "The price for buying bulk pensioner annuities is falling dramatically. But it remains to be seen if the insurance market conditions will persist or if this will be remembered as a short window of opportunity."

"Most companies should review pensioner buyouts as a serious option in the current financial climate," he added.

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