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May 8, 2008    

Large employers set to offload pension schemes

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by Kay Murchie
Large employers set to offload pension schemes

According to actuarial consultancy, Lane Clark and Peacock (LCP), some of the UK’s largest employers are likely to offload their pension schemes during the next 12 months.

LCP said the number of companies offloading their pension schemes to insurers has escalated over the last 6 months and the trend looks set to continue.

The pension buyout market in 2008 will exceed £10 billion, achieving a fourfold increase on 2007 volumes, said LCP.

The reason behind the concept is that employers are seeking ways to reduce the risk of final salary pension schemes.

At least 10 FTSE-100 pension schemes are evaluating comprehensive quotations to buy out some or all of their pension liabilities during 2008, said LCP while several large firms including P&O, Emap, Morgan Crucible and Rank have been involved in buy-outs since the start of last year.

The practice enables companies to transfer their pensions liabilities to an insurer for a one-off cost.

The insurer gets the assets of the scheme, plus a premium, and then controls it, paying out pensions to members as they become due.

As life expectancy increases, companies are finding it more expensive to offer pensions to their employees.

Clive Wellsteed, who heads the pension buyouts practice at LCP, said LCP sees the decision of whether to pass risk to an insurance company through buyout as simply a question of timing.

Most defined benefit pension schemes are closed to new members and were already expecting to buy-out with an insurer in the long term.

Favourable pricing now provides an opportunity to transfer some or all of the risk away much sooner. It’s not a question of if these schemes will buy out, but simply a question of when, concluded Mr Wellsteed.

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