(June 5, 2014) — More defined benefit (DB) pensions are likely to “parcel up” parts of their liabilities as they seek new ways of derisking, according to consultancy firm Mercer.
The company said the transfer of risk was set to grow in popularity this year across the world as schemes become “more ambitious” in their efforts to reduce future liabilities.
“In the UK, the volume of buy-ins, buy-outs and longevity protection transactions steadily increased in 2013 and we also saw more interest from pension schemes in the United States and Canada,” said Frank Oldham, global head of Mercer’s DB risk team.
“Liability management tactics, such as provision of flexible options for individuals in DB plans at retirement, are becoming more common in the UK. The picture is the same as in the US—there are now ways and means to offer cash-outs to deferred pensioners, pensioners and even active members.”
The company cited the UK government’s ongoing consultation into freeing up DB to defined contribution (DC) transfers as potentially beneficial to schemes looking to reduce liabilities, while also pointing to a number of other trends in Ireland, Germany and the Netherlands.
As well as pension funds engaging in buy-in or buy-out arrangements to manage legacy liabilities, Mercer said schemes were using other methods to reduce future liabilities, such as pension increase exchanges—whereby members are given an immediate uplift in their pension payouts while sacrificing future increases.
Related links: Children’s Charity Pensioners Safeguarded in Innovative Derisking Deal & Pension-Risk Transfers: Soaring or Grounded?