PricewaterhouseCoopers has told companies to do pension buyouts now or pay later, as it warns costs involved are set to increase by 10 per cent next year.
Companies and pension scheme trustees who want to transfer their defined benefit pension liabilities will pay more due to Solvency II, the new EU-wide regulatory regime which requires insurers to hold more capital to support buyout business written from January 2016.
PwC’s pensions advisory team predicted that this could drive a surge of activity in the buyout market in the coming weeks, as schemes rush to complete deals this year before the price hikes.
The professional services group reported around £13bn worth of DB pension liabilities were passed to insurance companies in 2014 and a further £5bn to date in 2015, as companies seek to remove these unpredictable and long-term liabilities from their balance sheets.
Jerome Melcer, pensions director and buyout adviser, said the expected price hike will affect pension schemes with pre-retirement members (so-called full buyouts) the most.
Deals which only involve members that have already retired will be less affected by the new solvency regime, where pricing has benefited from more insurers now operating in this market, Mr Melcer said.
“Any companies considering a pensions buyout in the next few years should buy now or could end up paying later, due to the price hikes Solvency II will bring.
“Companies or trustees looking at the business case for buyout will need early, reliable price visibility before pressing the button on buyout.”
PwC’s comments follow the government’s consultation on plans to create a secondary annuity market, which could be available only to annuities “outside an occupational pension scheme”, although it has been suggested this position might change.
John Broome Saunders, actuarial director for London-based Broadstone Pensions and Investments, said that allowing DB scheme members who have gone through a buyout process to sell their annuity would be unfair.
emma.hughes@ft.com
