Defined benefit (DB) pension schemes undertook £4bn of buyouts last year as the uncertain economic and financial environment drove employers to view schemes as unaffordable, research by JLT Benefit Solutions shows.
Data from the consultancy firm revealed the total volume of buyout deals in 2012 was largely driven by more than £1.5bn of deals in Q4 alone as employers sought to de-risk.
The larger deals were predominantly pensioner buy-ins, with the largest being the £680m Merchant Navy Officers Pension Fund transaction with Rothesay Life, it added.
JLT Employee Benefits director Martyn Phillips (pictured) said: “We expect this trend to continue. It is also encouraging that bulk annuity prices remain relatively stable, which may enable a pick-up in activity in 2013 as schemes continue their aggressive drive towards de-risking. We anticipate a jump of around 50% in the buyout market compared to last year, equating to more than £6bn being transacted this year.”
However, JLT said continued concerns over the debt crisis in the eurozone mean that conditions will remain difficult and prices are unlikely to soften any time soon.
As a result, buyouts may remain unaffordable for many schemes, particularly if additional cash is required from sponsors, who may be unwilling to release capital in the current economic climate.
Phillips added: “There are still gilt-related transaction opportunities for schemes courtesy of the enduring low gilt yield environment, which means that schemes with the right investment profile continue to be able to exchange their gilt holdings for a pensioner buy-in contract with little or no additional cost.”
Indeed, last month the Institute of Cancer Research (ICR) Pension Scheme traded its gilts portfolio for a buy-in deal with Pension Insurance Corporation (PIC) covering £30m of liabilities.
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