Pension scheme risk transfer deals to hit record

RiskPension scheme risk transfer deals are likely to reach a record by the end of the year, according to Hymans Robertson.

In its latest Managing Pension Scheme Risk Report Q3 2011, the consultancy says a series of significant deals are to be completed in the next couple of weeks.

Buy-ins, buy-outs and longevity swaps could potentially top £9 billion (€10.5 billion) of UK pension scheme liabilities. Next year, the report suggests, will be just as “buoyant”.

Pension scheme buyouts, buy-ins and longevity hedging are some of the aspects of managing risks.

Buy-outs involve purchasing individual annuities for members of the pension scheme through a system where each annuity is a single policy between the member and the insurance company.

Buy-ins, on the other hand, involve purchasing a bulk annuity held by the trustee of the pension scheme as an investment.

Through longevity swaps, pension schemes can transfer some or all of the risk to a counter-party.

James Mullins, a partner and head of buy-out solutions, says pension schemes are increasingly viewing buy-in deals simply as an investment strategy decision.

“Many pension schemes are reviewing their government gilt holdings which provide quite a good match for pensioner liabilities, given the option to exchange some of their government gilts for a buy-in policy,” he says.

Mullins adds this provides a “near perfect match” for pensioner liabilities and at a potentially lower cost.

Meanwhile, JP Morgan Asset Management has published a strategy paper urging pension plans to “right-risk” rather than de-risk.

It recommends interest rate hedging on the fixed income part of a plan combined with diversification in the return-producing assets.

©2011 funds europe