Risk transfer deals worth £50 billion ($65 billion) might need to be restructured following a U.K. High Court ruling on guaranteed minimum pensions earlier this month, according to Aon.
The U.K. court ruled Nov. 1 that plan sponsors must equalize guaranteed minimum pension benefits between men and women in defined benefit occupational funds accrued between 1978 and 1997. Lloyds Banking Group, the plan sponsor in the case, could pay an estimated £500 million to amend the pension payments of three defined benefit pension funds as a result of the ruling.
According to Aon, the judgment has implications for pension funds that are planning to insure liabilities via buy-in deals. Moreover, future deal flow in the buy-in market also could be disrupted if pension funds choose a method of equalization that is incompatible with what insurers are willing to take on, according to Aon.
Mike Edwards, partner at Aon, said in a news release Thursday that the "judgment may lead to a range of methods being adopted by funds, with some significantly more complicated than others. This has the potential to present a huge problem to insurers as — with an expected surge in requests from schemes to update existing insurance terms — detailed consideration will need to be given to each individual case from an administration, regulatory compliance and pricing perspective."
But John Baines, another partner in Aon's risk settlement group, added in the release: "This doesn't mean that schemes should hold off from pursuing a buy-in or buyout while addressing equalization."
