Our viewpoint

Pension schemes could bag a bargain in 2018

Charlie Finch

In this blog Charlie Finch outlines why 2018 has the best conditions for pension buy-outs in nearly a decade.

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.