According to recent reports, corporate pension schemes here in the U.K. are now increasingly seeking to mitigate risk by offloading it to insurers in an effort to protect themselves from market turbulence in the future.
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Leading players in the UK’s corporation pension market have reported seeing a greater number of requests for “full buyouts”. Such a scenario involves the corporate pension program being wound up and an insurer taking on future payments owed to pensioners.
The new trend is a sign of the wide-reaching changes in the sector after bond chaos during recent weeks incited forced selling by many pension funds. As a rule, higher bond yields make it far easier for insurance companies to meet pension schemes’ future liabilities, which always move in an opposite manner to market rates. Insurers and analysts alike note that there is a desire from firms for their balance sheets to be spared exposure to market volatility.
Although average funding levels for pensions have experienced improvement, those hit by outsized losses in the recent turmoil may still not be in a strong position to offload their schemes. Furthermore, there are data and administrative challenges that must be met before a buyout can occur, and the UK’s insurance sector also has limited capacity.
