Insurance buy-ins and buy-outs slow in first half of 2016

Oliver Gill
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Trustees can transfer either part of all of pension scheme liabilities to insurers (Source: Getty)

The amount of pension scheme buy-ins or buy-outs fell by 39 per cent in the first half of 2016.

A total £2.7bn of schemes were transferred to insurance companies during the first six months of the year - this compares to £4.4bn in 2015 – according to research by actuarial consultants LCP.

Buy-ins and buy-outs are strategies used by trustees to ensure that members' liabilities can be met by pension schemes.

A buy-in is an investment decision. It is where the responsibilities for managing the pension scheme remain with the trustees but an insurance company provides a policy that funds either all or part of the scheme's liabilities.

A buy-out moves all the management responsibility for a scheme to an insurance company – unlike buy-ins, all the assets and liabilities are transferred into the the name of the insurer, which will write an individual policy for each member.

Schemes that totalled £12.2bn were subject to pension scheme buy-ins or buy-outs in 2015 – historically the second half of the year sees an upturn in activity.

“Insurers are reporting a strong pipeline of cases and we expect buy-in and buy-out volumes for the second half of the year to materially exceed those in the first half,” said Charlie Finch of LCP.

The population of insurers in the market is limited to six or seven firms. During 2016 three firms – Legal & General, Pension Insurance Corporation and Scottish Widows – took on £2.4bn of the £2.6bn schemes.

“Full buy-outs have been limited to smaller schemes so far in 2016 as insurers got to grips with how the new capital rules impact deferred pensioner pricing," said Finch.

The Brexit vote and associated falling gilt yields led to mixed results.

"Whilst the fallout from the vote opened up attractive buy-in pricing opportunities for schemes that can move quickly – demonstrated by the £10m that the ICI Pension Fund saved on their buy-in last month – it has reduced affordability for full buy-out for all but the best hedged schemes,” said Finch.

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