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UK: DC switch could aid life insurers – report

UK – A new report has argued that the UK life insurance industry should be able to benefit from the continuing shift to defined contribution pension schemes.

Moody’s Investor Services said the ongoing switch of occupational pensions schemes away from defined benefit could provide a “significant growth engine” for UK life insurance companies.

“UK corporates, partly in response to accounting change, but also following equity market volatility, are increasingly keen to close old defined benefit schemes and transfer administration and risk management to third parties,” Moody’s said.

“The insurance industry, with its vast experience of administering and pricing pensioner risks, should be able to play a major role in either the administration and/or financing of such business.”

According to a survey released last month by Mellon Financial Corp.’s Human Resources & Investor Solutions Group, defined benefit schemes are still going strong, despite the well-publicised drift towards defined contribution schemes.

“Fundamentally, Moody’s regards the UK life insurance industry as a sector which should be successful,” the rating agency said in a report on the sector.

It said that the UK – while it still has a substantial public sector pension system – was still essentially underfunded in terms of savings for retirement.

“Therefore there should be the ability to derive substantial profitable growth in pensions and other savings products.” And it saw compulsory private pensions – as in Australia and Switzerland – as a “foreseeable outcome in the medium-term”.

It argues that the life insurance industry should have a significant role in this market, either through provision of appropriate savings products or protection policies.

Life insurers could also provide corporate pensions advice or advice to wealthy individuals, Moody’s notes.

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