2015 sees rise in UK pension liability deals

The second quarter of 2015 has seen a big rise in pension buy-ins and buy-outs according to pension consultants LCP, as pension schemes continue to seek ways of reducing their long-term liabilities.

It said that buy-in and buy-out volumes reached £3.6 billion for the second quarter of the year, with seven transactions of between £300 million and £700 million. The largest transaction in the first half of 2015 was a £680 million buy-in by the Northern Bank Pension Scheme with Prudential. Just after the end of the second quarter, Rothesay Life, a wholly-owned subsidiary of Goldman Sachs, completed a £1.6 billion buy-in with the Civil Aviation Authority Pension Scheme, the largest risk settlement deal so far in 2015. The pension liability market has also seen a major longevity swap of £2.8 billion by the AXA UK Pension Scheme with the reinsurer RGA in July.

LCP partner, Charlie Finch, said that recent merger activity in the UK insurance sector should provide additional capital for underwriting pension buy-ins and buy-outs: “The mergers will improve the surplus capital of the combined entities and provide additional capacity to write buy-ins and buy-outs in a post-Solvency II world.” Under a pension buy-in, a pension fund purchases insurance for its liabilities, while with a pension buy-out, it transfers the pensions risk to an insurer in return for a premium payment.