UK - Pension funds must consider the possibility of buy-ins as an investment solution in light of depressed gilt yields, Mercer has argued.
Outlining how schemes could proceed in the current environment, Stuart Benson, partner at the consultancy's financial strategy group, argued that both buy-ins and a shift from government to corporate bonds should be examined.
Benson said moving from sovereign to corporate debt looked attractive, "even after allowing for default risk", while risk-transfer deals had the advantage of reducing any liabilities imposed by rising longevity.
"There are clearly some attractions to both routes," he said, adding that the decision remained "more complex" than it initially appeared due to the shorter maturities of most corporate debt and the resulting medium-term gains to return versus long-term increases that could be secured though sovereign exposure.
Benson's colleague David Ellis, principal at Mercer, also urged caution despite the effect of quantitative easing helping to identify potential opportunities.
"A rush to a bulk annuity at the wrong time may prove to be more costly than getting the basics into place first," he said, stressing that it was more important any scheme have accurate and current data to assess whether the corporate bond route was potentially the better than a buyout.
In other news, Pension Corporation has completed a £15m (€19m) buy-in of liabilities for the Graham & Brown Retirement Benefits scheme.
The structure of the deal with the Pension Insurance Corporation (PIC) will allow trustees to insure all liabilities at the time of signing, with PIC noting that only half of the premium would be expected from the scheme in advance.
Trustee chair John Carter said the deal had allowed his scheme to insure all pensioners despite its not being fully funded at present.
"The deferred premiums will be payable over the next five years, replicating the scheme's funding plan, but removing volatility and risk and providing certainty about pension payments," he added.
Xafinity Consulting advised the trustees on the buy-in.