Interest in buy-outs has increase dramatically over the past five years with more than a third of defined benefit (DB) scheme trustees now targeting such deals to secure their liabilities.
The share of DB trustees targeting a long-term journey plan which involves a buy-out has increased from a mere 11% of schemes surveyed in 2013 to 37% in 2018, according to a Willis Towers Watson poll of 150 trustees.
The poll revealed that 32% of respondents are targeting an outright buy-out, the remaining 5% plan to run the scheme-off over time, targeting a buy-out-like funding, Willis Towers Watson said.
While the number of schemes stating that they have a long-term journey plan has remained stagnant at just over 60% over the past five years, the share might increase with the implementation of the new government White Paper for DB Pension schemes, which is set to make the implementation of a long-term plan mandatory.
Examples of recent buy-out deals include fashion retailer BHS, which struck an £800m deal with the Pension Insurance Corporation earlier this week, in a bid to ensure the liabilities for its 9,000 members. PIC has also recently signed insurance deals with the Civil Aviation Authority’s defined benefit (DB) pension scheme and industrial manufacturer 600 Group.
Shelly Beard, senior director of transactions at Willis Towers Watson, comments: “Some schemes will be closer to buy-out than they think. For example, because insurance pricing can be keener than the actuary’s solvency valuation, or because insurers’ life expectancy assumptions have softened since the last actuarial valuation.
“We have recently seen some of the most competitive buy-in and buyout pricing for a decade, particularly for pensioners,” she added.
