De-risking Breaks (More) Records

2014 is already a record-breaking year for UK pension funds’ de-risking activity.

With more than a month left on the calendar, the volume of UK pension fund assets that have been de-risked to a third party has already beaten previous annual records.

Figures released today show £8.5 billion in assets and liabilities had been transferred to insurers—or other third parties—by the end of September, beating the previous 12 month record of £7.8 billion set in 2008.

Experts have also predicted there will be more deals before the year is out.

“While we don’t anticipate the historical rush of year-end transactions witnessed in previous years, we expect total volumes to exceed £10 billion by the end of 2014,” said Emma Watkins, partner at LCP, a consulting firm that advises de-risking pension funds.

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Over the third quarter of 2014, gilt yields fell dramatically pushing up deficits and highlighting the financial risks facing pension schemes, Watkins said. “With continued volatile market conditions and record insurer capacity keeping insurance pricing competitive into 2015, we expect buy-ins to continue to be an attractive option for pension schemes wishing to de-risk.”

Several large deals have helped boost this year’s total, including a buy-in by the ICI Pension Fund worth £3.6 billion in March—which on its own would have been close to the total volume in 2009.

Additionally, the popularity of longevity de-risking products has continued to increase.

The number and volume of these deals have steadily risen over the past two years, but spiked with the £16 billion longevity swap carried out by the BT Pension Scheme in the third quarter of the year.

Mark Paxton, senior bulk annuity consultant at Barnett Waddingham, called 2014 “spectacular” and said the number of large deals completed was indicative of potential outcomes for pension funds and their sponsors.

“With some new insurers looking to enter the market, the signs are positive that 2015 will be another very successful year,” he concluded.

Related content: The End of De-Risking & The Day After the Buyout  

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