Private Pensions: Growing pensions liability market

DB pension liabilities sold to banks and insurance companies

DB pension liabilities sold to banks and insurance companies

In the three months to the end of June, British pension schemes sold defined benefit pension liabilities to banks and insurance companies at a steady rate. There is also a healthy level of transactions planned for the rest of the year, according to consultants Hyman Robertson.

£1.4bn worth of deals agreed in first 6 months of 2011

Almost £1.4 billion worth of buy in and buy out deals were agreed in the second three months of this year, a big increase on the modest £300m business done in the first quarter of 2011. Most of these deals have been made by smaller pension funds.

“Corporate desire to offload risk is high”

Patrick Bloomfield, Head of Trustee Solutions at Hyman Robertson, said, “The corporate desire to offload risk is high and the global market turmoil in the past week will mean more pension schemes will decide on this route”.

There were eighty one such deals concluded in the first six months of 2011, almost identical to the number of deals struck in the first six months of last year, which was eighty. However the value of the deals done this year is far lower than in 2010. Last year the transactions were worth £3.2 billion, almost double the £1.7 billion of business done in the first six months of 2011.

Mr Bloomfield believed the smaller overall value of the deals this year was because there was a lack of the larger deals which took place in 2010. One of last years biggest deals was the £1.3 billion buy in agreement that British Airways reached with Rothesay Life (part of Goldman Sachs). In contrast, the biggest deal in the last three months was worth only £280 million.

We could see deals worth several billion by end of year

There were no longevity hedge transactions over the first half of 2011 but Mr Bloomfield expects this to change fairly soon. He said, “These deals are big when they happen and we could see half a dozen transactions totalling £5bn-£6bn before the end of the year”.

Japanese investment bank, Nomura, together with the insurer Friends Life have entered the risk transfer market in the last three months. Since 2006 banks and other financial institutions have taken on about £30 billion of pension scheme liabilities. Hyman Robertson believes this figure will grow to around £50 billion by the end of 2012.

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