Our viewpoint

Pension schemes could bag a bargain in 2018

Charlie Finch

Whilst some are busy bagging bargains in the January sales, there are deals to be had for those seeking to take advantage of favourable conditions in the buy-in, buy-out and longevity swap market too.

A key finding from our latest de-risking report - that has been the main focus for various press reporting on our research so far - is the improved affordability for buy-out with one in five FTSE100 UK defined benefit pension schemes now estimated to be over 80% funded relative to the cost of buy-out with an insurer, up from one in eight a year ago. This is on the back of average buy-out funding increasing by nearly 10% since the immediate aftermath of the EU Referendum in August 2016 to reach the highest level since the banking crisis in 2008.

This improved affordability for buy-out is essentially down to three primary factors:

  1. Buoyant investment markets (the FTSE 100 ended 2017 at a record high);
  2. Insurers improving their ability to source attractive long-dated assets that are effective under the new Solvency II regime; and
  3. Perhaps, most significantly, a convergence in views that life expectancies are reducing, on the back of several years of heavier-than-expected mortality rates. (The latest mortality projections published in 2017 resulted in the life expectancy of a 65 year old man falling by nearly half a year reducing pension scheme liability values by around 3%.)

However, insurers are reporting a big increase in schemes approaching them for pricing with over £30bn of buy-ins and buy-outs already in the pipeline. So 2018 has all the ingredients for being the busiest year the market has ever seen – those schemes who wish to bag the best bargains in 2018 will need to think carefully how to stand out from the crowd.

Download our de-risking report here 

What's inside?

  • Review of 2017 and our predictions for 2018
  • Current pricing opportunities for buy-outs and buy-ins
  • How phased buy-in strategies provide cost effective de-risking for schemes working towards being fully funded
  • How longevity swap structures have evolved to reduce costs and better meet pension schemes' needs
  • Case studies from 2017 of how LCP helped:
    • the Pearson Pension Plan to complete £1.2bn of buy-ins;
    • a multi-employer scheme to complete a £600m pensioner buy-in; and
    • a £30m scheme work through closure to accrual and subsequent full buy-out.