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Overhyped pension buyout market falters – Aon

UK - Both the number of cases and the total value of business placed in the UK's pension buyout market have fallen in the third quarter of this year.

In its latest study of the buyout market, consultancy company Aon said the pensions buyout market is still struggling to take off, despite evidence of large potential.

Whereas there were 75 cases places in the second quarter, up from 50 in the first, the third quarter saw only 60 cases hit the market, said Aon.

The total value of business placed reached £239m (€334m), but this was down compared with the previous quarters and the average value per scheme placed was also slightly down at £4m.

The result is surprising, given the level of hype that has been created, said Paul Belok, principal and actuary at Aon Consulting.

He added there were some mitigating reasons for the buyout fashion though, mentioning, in particular, announcements regarding acquisitions made by Pension Corp. and Citigroup.

"[These were] suggesting that it may be possible to offload pension liabilities "on the cheap" - this could have given some employers who had been considering a buyout pause for thought," said Belok.

Moreover, the Financial Assistance Scheme has "stymied" some cases which were about to buy out, he said, adding: "Nevertheless, there is no hiding the fact that the quarter's results will not be what those in the market will have wanted to see."

Still, of the schemes that have obtained buyout quotations during the quarter, it would only need about 5% to buy out in the next 12 months for the market to start showing some growth.

This quarter's study is consistent with Aon's previous surveys, which found too few pension schemes see buyout as realistic and affordable, for the buyout market to reach the widely-predicted boom.

Aon's latest research comes just days after Pensions Corporation, under its Co-Investment No.5 Limited Partnership (CILP) division secured shareholder agreement to buy Telent - a former Marconi company with few assets left except the £2.5bn pension fund.

If you have any comments you would like to add to this or any other story, contact Carolyn Bandel on +44 (0)20 7261 4622 or email carolyn.bandel@ipe.com

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