Free Trial Corporate Access

Global Investor Magazine
Global Investor Magazine Copying and distributing are prohibited without permission of the publisher

Pension de-risking: insource or outsource?

14 February 2014

The conditions for pension buyouts are perfect, with high equity markets, strong corporate balance sheets and a willing reinsurance market. But should pension funds, asks Ceri Jones, manage derisking themselves?

2014 will be a massive year for bulk annuity and longevity swap transactions, driven by both a steady increase in the number of defined benefit (DB) pension schemes exploring these markets and by a few mega deals.

Conventional buy-ins – where the assets stay on the pension scheme’s balance sheet and the trustees remain ultimately responsible for the benefits – continue to dominate the market. But more pension schemes are now considering a full buyout, where the pension assets and liabilities are transferred to an insurance company that takes over full responsibility for making disbursements to pensioners.

This trend is partly a result of the rise in long-term interest rates and equity markets, which have increased their affordability, and because many companies have also reined in their spending in the last few uncertain years and now have plenty of cash on their balance sheets.

Once transacted, the insurer will usually lay...