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UK roundup: TPR on Brussels, Aviva, Union of Mineworkers

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  • UK roundup: TPR on Brussels, Aviva, Union of Mineworkers

UK - The Pensions Regulator has warned of the "significant" risk posed by European regulation as it published its annual report for 2011-12.

The UK regulator said resources had been spread more thinly than in previous years, both as a result of the country's public sector spending restrictions, but also due to the higher case workload as defined benefit schemes struggled with historically low gilt yields and resulting deficits.

It added that, while it was focused on domestic activities - including the review of public sector pensions chaired by former Work and Pensions secretary Lord Hutton - it engaged in "a very active way" with both the European Union and the European Insurance and Occupational Pensions Authority (EIOPA).

Referencing the ongoing review of the IORP Directive underway in Brussels, chief executive Bill Galvin said: "We have worked hard to ensure the key elements of the UK pension system are understood in this dialogue, and that EIOPA's advice includes options that would work in the UK context, if sensitively implemented."

He added: "These are important issues for us, and the risks of a poorly implemented European agenda remain significant."

Chairman Michael O'Higgins added that both sponsors and schemes had faced an "extremely testing time" in the wake of the euro-zone crisis, as interest rates fell among member states viewed as safe havens.

"While always focusing on protecting members, we've sought to apply the defined benefit funding regime flexibility with due account to affordability," the chairman said.

In other news, insurer Aviva has announced a review of its large-scale Bulk Purchase Annuity (BPA) business - with consultancy Aon Hewitt arguing that the insurer's departure from the market will not have a significant impact.

The review, coming as part of a reorganisation of the business and its management structure in the wake of chief executive Stephen Moss's departure, will see a review of the BPA due to low capital returns - despite writing nearly £2bn (€2.5bn) of business in 2010-11.

Paul Belok, principal and actuary at Aon Hewitt, said initial impressions given by Aviva were that the company would remain active with transactions of up to £50m.

"The majority of Aviva's deals have been at the smaller end of the market, and, as a result, the impact of its withdrawal from the large-scale Bulk Purchase Annuity market may be relatively limited.

"We expect to see some reduction in the number of providers interested in the larger deals, but this is an area of the market where the level of competition remains very healthy."

Belok referenced Reinet's £400m investment in Pension Insurance Corporation to highlight that interest remained in the market.

Lastly, the National Union of Mineworkers Permanent Employees' Pension Fund has entered into a pensions insurance buy-in with MetLife Assurance in a deal notable for its quick turnaround.

According to Barnett Waddingham, which advised on the deal, the pension fund's conservative investment strategy meant it had benefited from historically low gilt yields.

This made the timely transfer of roughly £27m (€33.6m) of assets to insure pensioners' guaranteed benefits all the more "financially attractive", it said. 

The consultancy said the deal - a bespoke arrangement where the quotation, legal requirements and due diligence followed an expedited process - was completed within a record two weeks of requesting a formal quotation from MetLife.

Paul Jayson, partner at Barnett Waddingham, said: "Our arrangement with MetLife meant that, having spotted an opportunity for an advantageous deal, liabilities could be secured quickly.

"Even the shortest delay involved with the usual buy-in process could have led to this opportunity disappearing."

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