Study Shows UK Pension Risk Transfers Set to Double

(November 17, 2010) — Buoyed by improved market conditions, risk transfer deals are expected to surpass £1 billion in the fourth quarter.

In Hymans Robertson’s latest Managing Pension Scheme Risk Report Q3 2010, the firm showed pension risk transfers are set to more than double at FTSE 100 companies by 2012. This follows a quiet summer for bulk annuity transactions, where only one deal in excess of £100 million occurred in the third quarter.

The firm noted that along with improved market conditions over the last year, the change to the consumer price index (CPI) inflation measure has contributed to the flood of activity. “Hymans Robertson’s analysis illustrates that Q3 2010 is the ‘calm before the storm’ for the pension scheme risk transfer market,” commented James Mullins, senior liability management specialist at the firm, about the study. “Many of the banks and insurance companies acknowledge that they are currently devoting serious resource to around 20 large pension scheme risk transfer projects.” He added that banks and insurance companies continue to offer new flexibility to help make risk transfers accessible to all pension schemes.

According to Hymans Robertson, by the end of September, nine FTSE 100 companies had already completed such deals, with total transfers valued at £6.5 billion. By the end of 2012, the firm expects one in four FTSE 100 companies to have completed a material pension scheme risk transfer deal. The latest deal — a £124 million buy-in with Aviva by Next makes up a majority of the £500 million spent between July and September, and Hymans Robertson predicts the figure would double in the three months to December.

Separately, Mercer has published its own research targeting the buy-in market, and noted that the switch to CPI would eventually have a positive impact on buy-ins. Yet, it said the UK would need to develop a liquid market for CPI-linked assets before the benefits would be enjoyed.