Buy-ins and buy-outs remain attractive, despite record low bond yields pushing up prices, Towers Watson said today.

Speaking as the consultant launched a new quarterly report accompanying its monthly pricing data on the bulk annuities market, senior consultant Ben Stone said that, although prices remain expensive, a strong start for equities in 2013 had brought opportunities for some.

“Buy-in and buy-outs are usually priced according to gilts or corporate bonds,” he explained. “For those whose assets are invested in other types of assets such as equities the first few months of this year might have presented a gap for a potential solution. For some, the mismatch might have worked in their favour.”

Despite this, the emphasis on de-risking in recent years, which has seen pensions increasingly heavily invested in fixed income means many will not have benefited.

“The more weight schemes give to de-risking, the more reliance there will be on sponsor contributions to bridge the gap to potential buy-in or buy-out,” Stone said.

The report also examines the drop in overall levels of scheme buy-ins and buy-outs in 2012. While both the value of bulk annuities and longevity swaps business fell significantly last year, much of this was due to a few large deals resulting from factors peculiar to the sponsoring companies rather than the market. Likewise, timing for longevity swaps had a heavy impact on annual figures.

“These deals can take six to nine months,” said Stone. “It’s almost a lottery which year they land in.” According to Towers Watson there are currently eight reinsurers seeking to take longevity risks onto their books from UK pension schemes.

Deals for this year name-checked in the report include a £9m buy-in deal for the Chamber of Shipping Retirement Benefits Plan in March, National Express’s £272m buy-in February, and BAE Systems £3.2 bn longevity hedge, also in February.

Share Story: