UK - Recent drops in interest rates have increased the cost of buy-ins in absolute terms but not in relative terms, Hymans Robertson has argued, saying that the price of such a risk-reduction measure has now fallen "quite significantly".
The consultancy said that, after the "poor" performance of equity portfolios over the past year, the ability of a pension fund to complete a full buyout would have shifted further out of reach.
James Mullins, head of buyout solutions at Hymans Robertson, estimated that the fourth quarter's equity rally would have only been able to keep track with the increase in buyout premiums due to a fall in yields at the same time.
"However, current dynamics in buy-in prices represent an interesting opportunity to increase efficiency in hedging strategies, and schemes should investigate them," he said.
"The good news for pension schemes is that, whilst the cost of a buy-in will have increased in absolute terms as a result of the fall in long-term interest rates, the cost of a buy-in relative to the value of these matching assets is likely to have fallen quite significantly."
Mullins said that a buy-in of older pensioner payments might in fact now be cheaper than investing in UK gilts or implementing a liability-driven investment strategy.
In other news, the Department for Work and Pensions (DWP) has launched a review on how impending auto-enrolment reforms should address UK workers deemed cross-border employees.
Speaking of the consultation in the House of Commons yesterday, pensions minister Steve Webb said it addressed an issue that could place "an unnecessary burden" on employers to find a qualifying pension scheme.
Automatically enrolling these 'dual-status' workers into a company's pension scheme would mean the fund would be obliged to register with both the UK Pensions Regulator and the pension authority in the respective second territory.
The DWP consultation, which runs to the beginning of April, also noted that, because there is no obligation on a scheme to accept such dual workers, and the government has no provisions to force their acceptance, employers could find themselves in breach of the Pensions Act 2008 - mandating all qualifying employees be enrolled.
The consultation therefore asked if all dual-status workers should be exempt from auto-enrolment
"Clearly, there will be a cost to the individuals who will not be automatically enrolled," the DWP said, estimating that 9,000 workers would be affected, leading to an annual loss in contributions and tax relief of £10m (€11.9m).
Consultation responses must be submitted by 2 April.