The sixth annual LCP Pension Buy-ins, Buy-outs and Longevity Swaps report, published today, reveals a four-year high for the number of buy-in and buy-out transactions over £100 million but highlights that the buy-in and buy-out market is yet to reach full capacity.
14 transactions worth over £100 million, including significant buy-ins for Tate & Lyle, General Motors and Gartmore, were completed in 2012, compared to 12 transactions in 2011 and 10 in 2010.
Overall volumes, at £4.4bn, were lower than 2011 (£5.2bn). The fall in volumes is particularly striking as many pension schemes had the opportunity during 2012 to sell gilt holdings - boosted in value by quantitative easing (QE) - and to use the proceeds to secure a pensioner buy-in policy with little or no impact on the pension scheme deficit.
A move by insurance companies towards a wider range of investments, such as social housing, has countered lower yields on corporate bonds and kept pricing relatively favourable for pension schemes seeking a buy in.
Clive Wellsteed, partner at LCP and co-author of the report said: "2012 was notable for two things. For the first time, buy-in pricing for schemes holding gilts was favourable for the entire year. It also saw an interestingly diverse range of companies - from sugars to cars to fund managers - use buy-ins to manage their pension risk."
The 2013 report highlights that buy-in and buy-out volumes could double from 2012 levels before capacity constraints start to bite. However, a material rise in gilt yields - with a resulting closing of pension deficits - could generate significantly higher demand and quickly lead to a capacity crunch. In turn this would lead to insurers becoming more selective than they are today.
Wellsteed continues: "Time will tell whether the eventual unwinding of quantitative easing will help to fix pension deficits But, until then, pension schemes completing a pensioner buy-in can move the pension risk dial down a notch and take advantage of current competitive pricing."
LCP's report also notes global derisking trends including big-ticket transactions in the US from Verizon and General Motors in 2012.
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