UK pension scheme buyouts to pass 10 billion pounds in 2014
By Simon Jessop
LONDON (Reuters) - UK pension schemes are expected to transfer more than 10 billion pounds ($16 billion) in payout obligations to insurance firms in 2014 and competition for deals is heating up as insurers seek to replace business lost elsewhere, an industry conference heard.
Companies are keen to offload the liabilities from their balance sheets, while insurers want the business to make up for the government's decision to scrap the obligation for individuals to buy an annuity at retirement.
"There's an awful lot of liabilities out there," said Mark Gull, head of fixed income at the Pension Insurance Corporation, citing a figure of 1.8 trillion pounds.
"It's a huge number and the amount that's gone to insurers over the last three or four years is probably about three or four percent of that."
Martyn Phillips, head of buyouts at JLT Employee Benefits, told the National Association of Pension Funds annual meeting on Thursday that the amount of pension scheme liabilities passed on in so-called bulk annuity deals should easily pass 2013's 7.5 billion pounds.
Sponsors had piled money into schemes in recent years but funding levels had failed to markedly improve, he said, and the liabilities would likely increase in the short term even though many final salary schemes have closed.
The current 2014 total of 6 billion pounds was largely the result of two big deals, a 3 billion pound deal involving ICI and a similar 1.6 billion pound deal with Total UK.
Consultants KPMG said on Thursday they expected the buyout market to grow to 20 billion pounds a year by 2020.
A straw poll of the audience showed nearly a fifth expected to do a bulk annuity deal over the next five years.
While insurers such as Legal & General and Prudential have led the way with such deals, others such as Aviva have also stated their intention to join in.
Phillips said he expected two new entrants to the market by the end of the year and a further one or two by the middle of 2015, a move that would help smaller schemes strike deals.
"There will be a transformation over the next six to twelve months in terms of the competition for these smaller buy ins and buy outs," he said.
(1 US dollar = 0.6225 British pound)
(Editing by Mark Potter)
