Q4 predicted to be busy for buyouts
UK - The final three months of 2009 are expected to be the busiest in over a year for pension insurance buy-ins and buy-outs, according to risk management provider Pension Corporation.
Its latest Pension Risk Transfer Index claimed overall affordability for pension insurance is at its most favourable level since the third quarter of 2008.
Officials also argued that sponsors and trustees now have more ability to focus on de-risking their pension funds than at any other time post the Lehman Brothers collapse, and suggested the narrowing of credit spreads is providing impetus for schemes to insure their liabilities where they are already invested in gilts and corporate bonds.
"We are back to where we were in September 2008," said Rob Sewell, chief financial officer. "A lot of pension funds have been coming back to us and been asking for quotes - that is why we expect this final quarter of the year to be the busiest one for pension insurance on record."
Sewell said pension funds are increasingly asking for guarantees which lock in the insurance price and do leave assets subject to volatility, adding "one of the biggest risks is delay".
Sewell said the buy-ins or buyouts of the coming months are likely to continue the trend of de-risking the liabilities of current pensioners, in part because deals can be signed or shorter durations.
In the third quarter of 2008, pension funds transferred approximately £2bn (€2.2bn) of risk through either buy-in or buyout transactions.
Schemes involved in a buyout or buy-in typically transfer their interest rate, inflation and longevity risk as well as assets to an insurance company, in exchange for bulk annuity contracts which guarantee to pay a set of defined benefits.