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Pension Risk Transfer

More FTSE 100 firms seen offloading pension risk in what could be record year — analysis

Up to 15 FTSE 100 firms will be in a position to complete risk transfer exercises for their U.K. defined benefit funds by 2021, consultant Lane Clark & Peacock said.

The firm said it had conducted analysis showing clear signs of an acceleration among the U.K.'s 100 largest companies to transfer retirement risk to insurers through full buyouts.

LCP found that five companies either have already closed any asset shortfalls or are close to doing so, enabling them to move to full buyouts.

The firm said a continuation in deficit contributions of about 7 billion ($8.9 billion) a year by sponsoring employers will likely lead to an increase in FTSE 100 companies that can afford to move to buyout. LCP said as many as 15 firms are projected to reach or be close to affording a full buyout in the next three years. A further nine companies are projected to hit this target by 2025, and 16 more by the end of 2028.

Additionally, LCP said that over the next 10 years about 300 billion of pension liabilities could be subject to buyouts. Even if FTSE 100 firms decide to reduce contributions to zero, 12 FTSE 100 companies are set to afford full buyouts over the next decade, LCP said.

The aftermath of the Brexit decision has also helped companies in their efforts to offload pension risk: LCP said the affordability of buyouts has increased significantly since 2016, with the aggregate funding shortfall falling 30% to about 200 billion thanks to good asset performance, falling life expectancy and strong price competition among insurers.

"Our prediction of a record year for buy-ins and buyouts on the back of improved funding positions has clearly come to pass, with total volumes exceeding 20 billion in 2018," Charlie Finch, partner at LCP, said in a news release outlining the analysis. "This has smashed through the previous record of 13.2 billion set in 2014."