Home > News > Asset Allocation > UK Pension De-Risking Expected to Rise Sharply in 2018
Asset Allocation

UK Pension De-Risking Expected to Rise Sharply in 2018

Report finds improving funded levels are making de-risking moves more affordable.

By Michael Katz

Because of the improving funding levels of the pension funds of some of the UK’s largest companies, there will likely be a sharp rise in the number of de-risking actions in 2018, according to a recent report from London-based consulting firm Lane Clark & Peacock.

According to the consulting firm, the number of FTSE 100 pension plans estimated to be more than 80% funded relative to the cost of buy-out with an insurer has nearly doubled over the past two years. The report found that 20% of the pension funds among the FTSE 100 companies were more than 80% funded in 2017, up from 13% in 2016, and 11% in 2015. It also found that the average buy-out funding level has increased by nearly 10% since August 2016, just after the UK voted to leave the European Union.

“As a result of this improved affordability,” said the report, “we predict a marked increase in demand from pension plans to de-risk in 2018, but also an increase in insurer capacity to cater for higher volumes.”

Insurers are reporting a pipeline of more than £30 billion ($40.5 billion) in  deals going into 2018, according to Lane Clark & Peacock. It also said that a main source of pension plan demand this year has been repeat transactions for plans that have already enacted de-risking plans.

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The report said that 2017 volumes for buy-ins and buy-outs are expected to exceed £10 billion for the fourth consecutive year. The largest volume insured by a single pension plan in 2017 was £1.2 billion by the Pearson Pension Plan, divided between two buy-ins with Aviva and Legal & General. Meanwhile, the largest single transaction was the £725 million full buy-in of the Former Registered Dock Workers Pension Fund with Pension Insurance Corp.

Looking toward 2018, the report said that considering the competitive dynamics across the market, it anticipates significant capacity available for pension plan transactions.

The average buy-out funding level is now at its highest level since before the banking crisis in 2008, said the report. However, despite FTSE 100 companies having paid more than

£150 billion into their pension plans over the past 10 years, the report found little resulting gain in overall funding, saying that it is this “challenging backdrop” that has been the main driver for companies to de-risk their pension plans.

“Conditions for de-risking are currently at their most favorable since before the banking crisis in 2008,” said Charlie Finch, a partner at Lane Clark & Peacock, “with the level of competition, pension plan funding, and pricing all at attractive levels.”

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Home > News > Asset Allocation > Chinese Provinces Consider Entrusted Pension Investment
Asset Allocation

Chinese Provinces Consider Entrusted Pension Investment

Nine provinces have transferred a total of $66 billion to the national pension fund.

By Michael Katz

Three provinces and one autonomous region in China are planning to make an entrusted pension investment to handle the mounting payment pressure, according to Chinese state media.

Gansu, Zhejiang, and Jiangsu provinces, along with the Tibet Autonomous Region, are considering entrusting some of their 150 billion yuan ($23.05 billion) in total pension funds to the National Council for Social Security Fund (NCSSF) for professional investment.

The National Social Security Fund (NSSF) is China’s social security reserve fund, which is used to supplement and adjust the social security spending, such as social insurance during the peak time period of the aging of population. The funding sources of NSSF include fiscal allocation from the central government, the transfer of state-owned capital and the fund investment proceeds, and capital raised by other methods approved by the State Council.

Tang Xiaoli, an official of the Ministry of Human Resources and Social Security, told Chinese state media that there is growing pension payment pressure due to the acceleration of economic restructuring, and an aging population, which requires new ways to support the funds’ value.

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So far, nine Chinese provinces have entrusted approximately 430 billion yuan ($66.08 billion) to the NCSSF for professional investment. Tang said China has about 4 trillion yuan in its pension fund balance, and that more provinces should be encouraged to use entrusted investment.

In November, the Chinese government announced plans to transfer part of the state’s assets into social security funds to help close the country’s growing pension gap. China’s State Council has said there is a shortfall in its basic pension system due to a longer deemed payable period than actual payable period. Under the asset transfer plan, the transfer proportion has initially been set at 10% of the state-owned shares, but the State Council said that might be adjusted considering the reform of the basic pension system, and requirements for sustainable development.

 

According to UN data, China’s working-age population of just over 1 billion will fall by 3 million to 6 million each year after 2021 to 952 million in 2030, and to 808 million in 2050. Additionally, China’s population aged 65 or older is expected to be 262 million, or 18.1% of the country’s population, in 2030, rising to 395 million, or more than 28% of the general population, in 2050.  

 

 

 

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