(March 15, 2012) — The first solution to buyout pension funds that are still accruing member benefits has been announced by derisking specialist Pension Corporation and opened up the approach to a wider range of schemes, paving the way for already spiking deal volume.
United Kingdom-based automotive part manufacturer DENSO has insured sections of two of its pension schemes worth a total £200 million with Pension Corporation, the insurer announced this morning.
The company said the deal was the first time pension funds had entered into a buyout that accommodated future accruals in a similar way to an open defined benefit scheme, but with the added security of the insurance regulatory regime protecting those benefits. The structure allows the scheme to be wound up and members to continue accruing final salary linked benefits.
Jay Shah, co-Head of Business Origination at Pension Insurance Corporation, said: “To allow future accruals, whilst insuring the members’ benefits, may provide a lifeline to other pension funds and a possible way forward for other DB schemes whose sponsors will fund future accruals but wish to remove the funding volatility.”
Today, consulting and actuarial firm Aon Hewitt said 2011 had been a bumper deal year, with pensions risk settlement deals – bulk annuities and longevity hedges – reaching £12.4 billion. This was 50% higher than the previous best of around £8 billion that was achieved in each of the previous three years.
Previously buyout options were only available to funds that had closed to new members, and future accrual by existing members due the relatively easily measurable nature of the assets and liabilities.
This new deal means funds may allow existing members to continue adding to their retirement pots, rather than be switched to a new system of pension provision, where they would usually take on most of the investment risk themselves.
Elsewhere, Club Vita, founded by consultancy and actuarial firm Hymans Robertson, has partnered with market infrastructure provider Deutsche Börse to launch new indices for pension schemes pursuing index-based longevity swaps.
The companies will create a way of measuring longevity based on more bespoke measurements than the current, rather less specialised options available.
The indices will use data collected by Club Vita from over 140 UK schemes to create bespoke options based on sex, geographical dispersion and income of members.
Last year, investment bank UBS teamed up with Barnett Waddingham to create more focused data for longevity swaps to try and capture a share of the growing market.