GLOBAL – The buyout market failed to meet expectations in 2012 as pension schemes struggled to raise funding levels, according to Aon Hewitt.

In its annual Pension Fund Risk Settlement Market review, the consultancy said expectations for a busy market had been high last year after the number of deals recorded in the second half of 2011.

But 2012 was a mixed year for longevity swap deals, due mainly to low pension scheme funding levels.

"The latent demand will surface, probably in a substantial manner, if overall funding levels improve," the report said.

"Where buyouts did occur in 2012, they tended to be for deals not demanding further funding – for schemes that were already in a strong funding position or where insolvency forced a transaction."

But Aon Hewitt went on to say that many buyout deals prepared in 2012 would be completed this year.

It also said opportunities would remain for pension funds to lock into longevity deals with little or no impact on cash funding contributions.

JLT Pension Capital Strategies reached similar conclusions late last year.

At the time, the consultancy noted in a report on de-risking deals that more than £900m (€1bn) of buyout deals had been completed in the third quarter of 2012 alone.

In an interview with IPE Magazine, Martyn Phillips, director at JLT, pointed out that synthetic buy-ins and longevity swaps remained the domain of larger pension funds, generally involving a minimum of £500m in pensioner liabilities.

Fewer than 200 schemes can therefore consider such transactions, he argued.

Aon Hewitt said increasing standardisation would be a key feature in opening up the market and making it more accessible to schemes with less than £1bn in assets looking to hedge their exposure to longevity risk.