Companies are reluctant to divest their pension liabilities, new research
Research from leading pensions consultancy firm Aon Consulting on 150 UK
companies operating defined benefit pension schemes between November 2006 and
February 2007 showed that around 68% of schemes are not interested in buyout at
Of those that are, only 10% would be prepared to pay more than 120% of the
liabilities calculated under FRS17. The typical cost of buyout is around 130% of
the liabilities under FRS17, although this varies from scheme to scheme.
This week, takeover proposals at Alliance Boots stalled, pending a review of
its pension liability position.
Only 10% of companies expect to remove their pension scheme liabilities
within three years, despite the recent emergence of providers dedicated to
buying out scheme liabilities.
Of those surveyed, 26.5% operated schemes that were open to new members and
accrual 59.1% operated schemes that were closed to new members but continued to
accrue benefits, while 14.4% operated schemes that were closed to new members
Aon went against the general consensus that there will be a surge in buyouts,
believing that the research indicated the market is likely to be a slower burner
‘Among those schemes that are considering it, the average time to buyout is
likely to be more than 12 years. Around 40% expect to remove scheme liabilities
over a period longer than 10 years. Many larger schemes could take even longer,
with almost 20% expecting to take more than 20 years.’
Paul Belok, head of closed schemes at Aon Consulting, added: ‘More than ever,
sponsors want to minimise or remove the effect of pension schemes on their
financial results. However, while there is a widespread intention to eliminate
pension liabilities from the balance sheet in the next 10 to 15 years, the
immediate demand for securing the benefits with buyout insurers is limited. Of
course, this is not helped by the discrepancy between the cost of buyouts and
the price that employers are willing to pay.’
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