Finance directors are benefiting from current discounts of up to 10% on bulk pension buyouts.
These have been driven by increased competition. Since the middle of 2006, the number of insurers offering buyout services has grown from two to 11. In addition, a rise in corporate bond rates has brought down the cost of buyouts.
Richard Jones, principal at M&A pensions consultancy Punter Southall Transaction Services, said: “Our discussions with finance directors reveal that there is always a price at which the FD would be willing to offload their pension obligations to an insurer.
“But those who consider current prices [are] good value are acting quickly, and therefore we expect to see activity slow quite quickly, as we consider current pricing levels to be unsustainable – once prices rise the demand will drop significantly.”
According to a Lane Clark & Peacock report released last month, entitled Pension buyouts 2008, the actuarial firm saw the value of buyouts grow seven-fold in the six months to 31 March 2008, compared with the previous half year.
Companies such as TI Group, Rank, P&O and Emap all completed buyout transactions on their defined benefit pension schemes in the six months to 31 March.
As many as ten FTSE 100 companies are currently looking to transact buyout deals on their pension schemes. “Some insurers estimate a total pipeline of £25bn,” said Clive Wellsteed, partner at Lane Clark & Peacock.