Companies missing out on de-risking opportunities, finds JLT

19 December 2016

  • Flurry of deals have closed in late 2016 despite challenging market conditions
  • Quotations are currently available for very small schemes due to more efficient processes developed by one insurer
  • However, 2016 buy-in/buyout new business volumes are likely to finish lower vs. the last two years

A widespread misconception that low interest rates preclude pension buy-in/buyouts is hampering companies’ de-risking opportunities, finds JLT Employee Benefits (JLT), one of the UK’s leading pension and employee benefit consultancies. In its latest Buyout Market Watch report, JLT found that even very small schemes of less than £1m have managed to obtain quotations and transact in H2 2016.

JLT finds that some schemes are deferring buying in some or all of their liabilities until yields rise. However, schemes need to weigh the risk of waiting for yields to rise, against delaying and seeing a rise fail to materialise, whilst liabilities deteriorate further*.  Also, it’s usually the relative rather than the absolute price that matters in a deal and it can be less obvious how this will change as yields rise.

The report, which looks at the key developments and pension buyout market activity in Q4 2016, projects that transactional activity in 2016 will be short of the 2014 and 2015 volumes which totalled £13.2bn and £12.4bn respectively. However, when a couple of relatively large back-book transactions are included (£6bn and £3bn transfers of annuities from AEGON to Rothesay Life and Legal & General), insurer capacity deployed so far over 2016 does not look dissimilar to 2014 and 2015 levels.

Graph: Bulk annuity and longevity swap market volumes 2005-end June 2016

Graph showing bulk annuities and longevity swaps from 2005 to 2016

The largest deals so far in 2016 are the £1.1 billion buyout of the Vickers Group Pension Scheme with Legal & General; the Electricity Supply Pension Scheme’s £1bn longevity swap with Abbey Life; and Aon Retirement Plan’s £900m buy-in with PIC. Additionally, the ICI Pension Fund has completed a further five buy-in tranches this year, including a £750 million buy-in with Legal & General and a £630 million buy-in with Scottish Widows.

 Ruth Ward, Senior Consultant at JLT Employee Benefits, commented: “We are aware of plenty of cases where schemes have been ready to complete a buy-in or buyout but have delayed in the expectation of an improvement in pricing which has just not materialised.

“In contrast, a number of schemes we advise have seized the opportunity to transact on acceptable buy-in/buyout terms over the last few weeks.  We are encouraged that even the very smallest schemes of less than £1m have been able to obtain buyout quotations, allowing them to settle their pension liabilities.  The market has got more difficult for such schemes over the last couple of years, but one insurer, Aviva, has developed more efficient processes to cater for this end of the market, whilst continuing to quote on mid-large deals.

“Our view is that trustees and sponsors should insure their liabilities as soon as they can afford to do so. There is no guarantee that the position will look better in future and, even if it does, it may prove more difficult to get a quotation and execute a transaction. In practice, this is likely to mean that trustees for all but the smallest schemes insure their schemes’ pensioner liabilities (or subsets of these) in the first instance, and cover more members at a later date.

“This time last year there was a lot of speculation that Solvency II would have a big impact on non-pensioner liabilities, but many buyout deals (covering both current and deferred pensioners) have still gone ahead including L&G’s recent £1.1bn transaction. In fact, we have seen a flurry of late deals closing this quarter despite current market conditions.”

- ENDS -

Notes to Editor


JLT Employee Benefits

Corinne Gladstone, PR Manager| T: +44 (0)20 7895 7705| E:

Smithfield Consultants:

Emily Cullen| T: +44 (0)20 7903 0641| E: 

About JLT Employee Benefits

JLT Employee Benefits is one of the UK's leading employee benefit providers offering a wide range of benefit and pension services, including administration, actuarial and pension consultancy, investment, Self Invested Personal Pensions (SIPPs) and Small Self Administered Schemes (SSASs) administration, flexible benefits, healthcare, benefit communication and financial education.

JLT Employee Benefits employs over 2,200 professionals throughout the UK and in 2013 had revenues of £172m in UK & Ireland.

Pensions and employee benefits companies within the JLT Employee Benefits group of companies include: JLT Benefit Solutions Ltd, Profund Solutions Limited, JLT Wealth Management Limited, JLT Investment Management Limited and Independent Trustee Services Limited. JLT Employee Benefits is part of Jardine Lloyd Thompson Group plc.

About Jardine Lloyd Thompson Group plc

Jardine Lloyd Thompson is one of the world's largest providers of insurance and employee benefits related advice, brokerage and associated services. JLT's client proposition is built upon its deep specialist knowledge, client advocacy, tailored advice and service excellence.

JLT is quoted on the London Stock Exchange and owns offices in 41 territories with some 10,600 employees. Supported by the JLT International Network, it offers risk management and employee benefit solutions in 135 countries.

Corinne Gladstone
PR Manager +44 (0)20 7895 7705