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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
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...
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