UK DB pension schemes could move £200bn to buy-in policies
by Gill Montia
Aon is proposing that UK defined benefit (DB) pension schemes could release up to £200 billion currently invested in gilts, for buy-in purposes.
According to the insurer, conditions in the bulk annuity market mean the switch of funds could secure a better match for pensioner liabilities, reduce risk and insure against rising life expectancy.
Paul McGlone of the risk settlement group at Aon Hewitt, comments: “Aon Hewitt’s Bulk Annuity Market Monitor shows that it is currently a good time for pension schemes holding gilts to get an even better match with their liabilities by undertaking a pension buy-in.”
He adds: “In doing so, trustees can close out some of their longevity, investment, inflation and interest-rate risk by securing an income stream from an insurer which matches outgoing pension payments.”
Aon Hewitt’s latest survey indicates that only 24% of medium-sized UK DB pension schemes are considering implementing a buy-in, with only 2% having already done so.
However, Mr McGlone points out that buy-ins are not right for all pension schemes, particularly those not already holding gilts.