Most FTSE 100 companies are unlikely to opt for a full buyout of their defined benefit pension schemes, but many are likely to move to get part of the scheme off their balance sheet.
Speaking at a pensions roundtable discussion, David Evans, development director of bulk purchase annuities at Legal & General (L&G), said that a low percentage of FTSE 100 companies are considering a full buyout, but a number are starting to buyout members on retirement.
Isabel Hudson, chief executive at Synesis Life, a new company to the buyout market, said she had been “pleasantly surprised” by the number of FTSE 100 companies contacting the firm, but added that these companies moving to buyout the whole scheme was unlikely.
The expansion of the buyout market was also discussed. Once a duopoly of Legal & General and Prudential, both of which buyout the schemes of insolvent employers, a number of new options are now available.
“Insurers have large [cash] reserves — they might eat into to these in any one year, but they still have other [lines] of business. New businesses [in the market] have little reserves,” said Evans.
He also expressed worries over whether the Financial Services Compensation Scheme would be able to cover the costs if any of the new players went bust.
Hudson, from Synesis, however, added that the new players had brought innovation to the market. Whereas previously buyouts were only available to insolvent companies, more options are now available, such as buying out only part of a scheme or options for spreading the buyout cost.
She added that these new firms were in the market as their day-to-day business, whereas consultants were previously sometimes unable to get quotes.