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UK Schemes Transferring Pension Risk?
Ruth Sullivan of the FT reports, UK pension buy-outs rise:
UK pension schemes are increasing the rate at which they strike deals to transfer risk to an insurance company.
The
combined value of buy-outs, whereby an entire scheme is passed to a
specialist insurer, and buy-ins, which involve buying a policy to cover
the liabilities of a particular group of scheme members, reached £5.2bn
($8.4bn) in 2010, compared to £3.7bn a year earlier, according to a
report by Hymans Robertson, a consultant.
“An
increase in mergers and acquisitions activity is driving this,” said
James Mullins, head of buy-out solutions at Hymans Robertson. “Any
potential purchaser will welcome a company that has already done a deal
to transfer risk to an insurer. There is less to worry about.”
An
increasing number of closures and part-closures of defined benefit
pension schemes and concerns over longevity risk was also contributing
to the trend, he said.
Buy-ins proved to be most popular with
pension scheme trustees. Unlike buy-outs they do not require a large
cash injection from a scheme sponsor and are often the first step
towards a full buy-out. “Many companies would like to do a buy-out but
cannot yet afford one,” said Mr Mullins.
Overall deals, including longevity swaps, rose to £8.2bn for 2010, a little above the £7.9bn seen in 2009 and £8bn in 2008.
Mr
Mullins expected volumes to rise still further this year as several
large buy-ins and longevity swaps are due to be completed. He forecast a
rise to £10bn-£15bn, with a quarter of FTSE 100 companies likely to
have completed a pensions scheme transfer deal by the end of 2012.
GlaxoSmithKline
became the tenth FTSE 100 company to complete a deal in December when
it arranged an £892m buy-in with Prudential. Rothesay Life, the
insurance arm of Goldman Sachs, took the lion’s share of the
buy-in/buy-out market in value terms last year, accounting for a quarter
of activity.
Donia O'Loughlin of the FT Advisor also reported on the rising demand from pension schemes to transfer risk:
A
new report from pensions and benefits experts Hymans Robertson has
predicted that around £20bn of pensions liabilities could be transfered
to banks and insurance companies in the next 18 months, taking the
total value of this market to £50bn.
The paper, Managing Pension
Scheme Risk Report Q4 2010, found that insurance companies and banks
have already taken on the risks associated with around £30bn of pension
scheme liabilities since the transfer market took off in 2006/2007.
The
pensions and benefits experts attributed the increase to banks and
insurers taking increased control of defined benefit (DB) scheme risks.
Hymans claimed that members of defined benefit (DB) pension
schemes will increasingly be relying on insurance companies and banks
to provide their pensions.
Last year saw a record £8.2bn of
risk transfer deals, with buy-ins and buy-outs covering around £5.2bn
of pension scheme liabilities and longevity swaps covering around £3bn,
according to the report.
The value of buy-ins was more than five times the value of buy-outs during 2010, highlighting their increasing popularity.
Given
the ever increasing demand from pension schemes to transfer their
risks, it would be no surprise to see new entrants to this market
during 2011, claimed Hymans.
It expects one in four FTSE 100 companies to complete a material pension scheme risk transfer deal before the end of 2012
James
Mullins, head of buy-out solutions at Hymans Robertson, said: "Banks
and insurers continue to offer new flexibility to make risk transfers
accessible to all pension schemes.
"It is crucial that companies
and trustees are aware of this flexibility and innovation to ensure
that they do not miss excellent opportunities to reduce risk. In
addition, schemes are increasingly keen to manage away as much risk as
they can.
"There is a snowball effect here: the more schemes that tackle risk, the more pressure there is on others to follow suit.
"The
raft of final salary closures over the last two years and the
impending restrictions on tax relief for high earners' pension
contributions, are also increasing the demand from schemes to reduce
risk."
It's clear that the pickup in M&A activity is what's driving the
trend for private companies to transfer over their pension risk to
insurance companies. Don't worry, I'm sure banks and insurance companies
are more than happy to take on this risk and make a nice profit in the
process.
Finally, over in the public sector, the FT reports that state workers to pay more on pensions:
Public
sector workers, such as teachers, health workers and police officers,
would see their annual contribution rates to pension plans rise even
more than the £2.8bn increase sought over the next three years, under
plans laid out by George Osborne, the chancellor.
The issue
revolves around a technical matter, known as the discount rate, which is
used to calculate the cost of earning each additional rate of pension
benefits for many years in retirement.
Discount rates are
intended to take account of the time value of money many years into the
future. The lower the discount rate, the higher the future value of a
pension income becomes.
However, the chancellor said the
government does not intend to seek further contribution rises. Instead,
it will accept proposals set out in a review of public sector pensions
conducted by Lord Hutton, the former Labour minister, that will slow
the rate at which new benefits are earned and raise retirement ages.
Local
authorities and public sector unions have warned that the contribution
increases being sought are likely to prompt thousands of workers to
opt out of pension provision.
The new discount rate would be 3 per cent over inflation as measured by the consumer price index.
Until
now, the rate has been 3.5 per cent above the retail price index.
Using the Office for Budget Responsibility’s forecast of the gap
between the two, estimated at 0.83 percentage points, the effect is a
cutting of the discount rate by 1.3 per cent.
“Today we
publish the result of our consultation on the discount rate, which
shows that a more appropriate rate would be inflation plus GDP growth,”
the chancellor said.
“This reinforces our case for increasing
the employee contributions by an average of 3 percentage points.
Indeed, the new discount rate could be used to justify further
contribution rises.”
To sum up, in the private
sector pension risk is being transferred and in the public sector
they're cutting the discount rate to increase contribution rates. As
I've stated before, the global pension squeeze is on and policymakers
are taking note of what's going on in the UK because in all likelihood,
similar measures will be taken throughout the developed world. In the
new era of austerity, workers will have to deal with the harsh reality
of broken pension promises.
»
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As soon as I heard "banks" were involved, I knew someone is in for a good screwing.
It's a shell game and every time the shells move somebody gets a skim.
Silver $37.69
Ratio:38.25
OT
I want to commend Alan Watt's wisdom in 10 or 12 languages and english for all here at Zerohedge to peruse.
I believe he has seen first hand the false reality that is all around us (the matrix) after traveling the world. So much to learn from this sage!
Please scan his extensive library with obscure but seminal documents written by and on behalf of the elite: from Agenda 21, Sustainable development, the role of NGO's (non-governmental organizations) and non-profit organizations. This is how the elite have been running their take-over. They go AROUND the government rules and especially THE CONSTITUTION by indoctrination and infitration into education and media. This is what the 20 somethings must be made aware of so they can have any chance to fight back against it. All of my children would never attend a public indoctrination camp (school). The homeschoolers who are aware of this agenda and it's mode of infiltration and co-opting are the only hope we have if the young people today will be able to fight back against what has been on the go for more than a century now. You see the popular culture that is known as "western culture" is in essence a weapon.
See the weaponization of popular culture: This article by a military deputy chief of staff of intelligence is entitled "constant conflict" and describes how our western culture is what the military uses to break another culture in order to destroy it. This is what is really going on in MENA.
http://www.informationclearinghouse.info/article3011.htm
His research has uncovered the back room understanding of insiders who oversee the end game to globalization and financial terrorism.
Please pass this on.
http://www.alanwattsentientsentinel.eu/
http://cuttingthrough.jenkness.com/transcripts_Alan_Watt.html
If this is what you're home-schooling those kids on, then we're in trouble.
"Rothesay Life, the insurance arm of Goldman Sachs"
Ah, GS again. Weren't these the jokers that started the subprime housing fascio?
So this is how the major corps are going to dump their pension obligations-sell em to an AIG clone which will need a taxpayer bailout in the future.
Googled and found this article:
http://www.insurancedaily.co.uk/2010/07/04/rothesay-life-strikes-pension...
Rothesay Life strikes pension deal with British Airways"The liabilities are covered by an arrangement that allows the Trustees to retain ownership of the scheme’s assets, while Rothesay Life claims the proceeds and in return pays a portion of pensioner benefits."
So now pension assets are going to be the monopoly money for GS. Are these things regulated?
do they actually use the word "scheme" in their prospectus? if so, do they go "he, he, he" when they make their sales pitch?
Is the City regulated or more relevant CAN the British government even find the guts to impose regulation on its own financial elites, bed-rock of British wealth for last thirty years, now in jeopardy through uber-speculaton, is the REAL question...as the Titanic flounders. Imagine if all the russian oligarchs and ME oil sheikhs pulled out of London and put their money in another Shangri-la...But then, where would they go???
What is it with European banks? Looks like German banks are in for both a spanking and a haircut!
http://www.spiegel.de/international/business/0,1518,752712,00.html
Poor babies.
sunny
This is just the tip of the derivatives shadow banking iceberg involving German Lander banks, both in sovereign debt in european PIGS as well as in real estate toxic wind-downs hidden off books, tied into global banking networks all over the world. When/if this unwinds...mega hair cut in store...
its too bad for all the cops who followed the dream of dropping out of high school, becoming a badge bully, retiring in 25 years at age 43 ONLY to find there is a pile of shit at the end of the rainbow
You do realize, don't you, that some police officers risk their lives to save people? Indeed, every "routine" traffic stop is a risk to the officer's life because he never knows, as he approaches the vehicle, who is in it and what sort of weapon they may be carrying. There are many, many good cops and good firemen and good EMTs. . . Try not to reveal the mind of a child and lump everyone into your narrow-minded stereotypes. Call a spade a spade, but don't lump the hearts, clubs, and diamonds in with the spades.
I don't know why you harbor such resentment, but it is unbecoming. I suggest that you get some facts and rethink your position. More importantly, I suggest that you throw off your blinders and realize that we take people as they come--as individuals--not as "cops" and "government workers" and such.
You forgot the "/s " tag, for a second I thought you were serious.
When the good cops agressively out and rid of the bad cops, when cop administration stop aiding, abbetting, and defending bad cops, when fully independent civilian review is fully supported by the cop administration, when cops recite to themselves every day that the societal consequences of abuse of state power are far worse than any organized crime ('cepting this white collar bankster degeneracy, which your illustrious refuse to confront), then maybe the peon mass could agree with you.
+++++
There's nowhere to transfer it to; all the guarantors are insolvent. The general plan is "inflate away the problem".