There was a window of opportunity for pension buy-ins post-Brexit. But now it has gone...

 
Oliver Gill
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Spiralling pension deficits in the wake of the Brexit vote may have caused many people headaches but a leading insurer of defined benefit pension schemes said that it provided a short window of opportunity for some schemes.


"There has been a tangible increase in interest from trustees in buy-ins since the Brexit referendum and we have completed a number of transactions over the past few weeks and expect more to follow," said Uzma Nazir of Pension Insurance Corporation (PIC).

Nazir said the widening of corporate bond spreads – the difference between corporate bond yields and those of less risky assets such as UK gilts – presented an opportunity for some schemes as it reduced the cost of buying-in insurance from third parties such as PIC.

Many insurance providers will replace a scheme's pool of assets with cheaper assets such as corporate bonds.

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For those schemes that have an asset base that is weighted towards gilts this meant there was a considerable saving for the insurer while spreads were wider. And some of this saving was passed onto schemes.

"Corporate bond spreads increased temporarily to quite a high level which meant that [some] schemes got quite a good deal because we were pricing in high investment returns. Some schemes were able to lock into that,' said Nazir.

But this was only a temporary situation.

Jay Shah, head of origination at PIC said spreads have subsequently tightened and continue to do so as central banks seek to buy-up corporate bonds.

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A longer-term upside for schemes whose ultimate parents are based abroad is that they can benefit from the weak pound. Because they convert any sterling deficits into local currency, a weakened pound reduces the liabilities on their balance sheets.

PIC said that this means that there is a increasing number of sponsoring companies looking at buy-out options and lock-in current positions before they get worse.

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