U.K. Pension Buyout Business Cut by Financial Crisis

March 20, 2009 (PLANSPONSOR.com) - Insurers taking over corporate pension plans in the United Kingdom will see new business shrink by up to 50% in 2009 due to the financial crisis, according to the chief executive officer of Paternoster, one of the largest U.K. buyout firms.

Mark Wood, Paternoster’s founder, told Reuters new business this year was likely total £4 billion to £5 billion ($5.60 billion to $7.0 billion), against the £8 billion ($11.20 billion) written last year.

Pension buyout firms like Paternoster take over a pension plan’s assets and liabilities for a premium and pay pensions to the plan’s members, effectively taking volatile pension risks off company balance sheets (see UK Firm to Buy DB Plans ).

The industry was expected to take over £10 billion ($14.0 billion) of pension assets but was hit by the credit crisis in the second part of last year. Employers found themselves increasingly unable to foot buyout bills, Reuters reports.

However, the economy may not be the only reason the buyout business isn’t booming.

In 2007, an Aon Consulting report indicated the predicted rush by U.K. companies to pay third parties to take pension schemes off their hands failed to materialize (see Rush to Offload DB Plans Hasn’t Happened ). A 2008 Greenwich Associates study found virtually all of the companies contemplating such a move have pension fund assets of £2 billion or less. Among companies with bigger funds, virtually none (2%) say they have considered the buyout option (see Most UK Pension Sponsors Still not Keen on Pension Buyouts ).