The market in the United Kingdom for transferring pension plan risk to an insurance company has accelerated sharply over the past six months and is expected to grow rapidly, finds a report by Lane Clark & Peacock.
The actuarial consulting firm’s Pension Buyouts 2008 report predicts that the pension buyout market in 2008 will exceed £10 billion (C$19.9 billion), achieving a four-fold increase on 2007 volumes.
Competitive market rates, innovative structures and the ability to partially transfer risk to an insurer without needing to close down the pension plan are cited as key drivers for companies and trustees pursuing a buyout.
The report highlights that the potential for growth in the market is huge as £10 billion is still less than 1% of the potential market of private sector defined benefit pension plans.
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The credit crunch has also stimulated market growth, allowing insurance companies to use the higher yields available on investment grade corporate debt and other assets to reduce their prices.
“A year ago, many commentators were predicting the pension buyouts market would be a slow-burner,” says Clive Wellsteed, a partner at LCP who heads the pension buyouts practice. “Now the question is can insurers keep pace with demand from companies and trustees to offload risk.”
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