KPMG says pension buy-ins could be more difficult to price under Solvency II

KPMG reports today in a press release that the volume of pension buy-in deals in the UK has reached over £3 billion in the past year. Buy-ins see pension funds transfer some of their liabilities to the insurance market often with the sole purpose of offloading the longevity risk which is inherent in many large pension schemes.

KPMG have advised on a third, or £1 billion, of these buy-in deals but they suggest that the window of opportunity for pension funds to take advantage of buy-ins may not last with Solvency II implementation around the corner.

Favourable pricing conditions and increasing innovation in risk transfer have driven the record volumes of buy-ins in the UK in recent years. However the impending Solvency II legislative environment may make buy-ins a less attractive option as they could become more difficult and expensive to undertake. Solvency II is currently scheduled to come into effect in January 2014 and KPMG suggest that pension buy-in transactions may continue to increase in the run up to that date as schemes and funds take advantage of the more attractive terms.

Solvency II capital requirements may make pension buy-ins less commercially attractive say KPMG, meaning that schemes seeking to de-risk are looking for pension trustees to act quickly before the new rules come into effect. David Fripp, Pensions Partner at KPMG in Birmingham, said; “Many businesses looking to de-risk their pensions liabilities are hurrying to take advantage of the favourable pricing currently available and the opportunities to fund buy-ins with existing business and non-cash assets to get deals done quickly before Solvency II impacts are felt.”

Read the full press release from KPMG here.