FTSE 100 pension scheme' buyouts could hit £300bn over 10 years

FTSE 100 pension scheme buyout transactions could rocket from £5bn to £300bn over the next 10 years, a Lane Clark & Peacock report has found.

The funding position of the top 100 UK-listed companies has increased by 10 per cent over the past two years, making the prospect of a buyout much more attractive to an insurer.

The consultant predicts that if current market conditions continue, up to 40 companies are likely to reach, or be close to, fully funded on a buyout basis over the next decade.

LCP partner, Charlie Finch, said: “For those individuals who have a final salary pension, they will be increasingly likely to find that it is no longer being provided by their former employer but by an insurer such as Legal & General or Pension Insurance Corporation who took on over £15bn of pension liabilities between them last year through buy-ins and buy-outs.

“As the demand for buy-ins and buy-outs grows, the key question is whether the market is approaching a tipping point where pension plan demand outstrips available insurance capacity.”

According to the JLT Employee Benefits latest index figures, FTSE 100 liabilities totalled £659bn at the end of February, with a funding level of 98 per cent. Affordability has also been driven by falling life expectancies, good asset performance and price competition between insurers.

In January, Legal and General warned that the industry could be facing a capacity crux in the bulk annuity market over the longer term, due to a short supply of illiquid assets.

Finch added: “To date insurer capacity and pricing levels have kept pace with increasing demand but, at the current rate of growth, demand looks set to outstrip capacity over the medium term putting upward pressure on pricing and squeezing less attractive schemes out of the market.”

The bulk annuity market is expected to remain at historically high levels over 2019, with up to £30bn worth of deals predicted, according to Willis Towers Watson.

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