The amount that companies offloaded to insurers has increased seven-fold

More companies are passing on their pension scheme obligations to insurance companies that specialise in taking on the liabilities because of competitive pricing in the market, finds a new report.

The report said that the £4.1bn businesses offloaded to insurers in the half–year ending March 31 was 7 times higher the figure recorded in the preceding six months.

The market is on target to exceed £10bn of business in 2008, a three-fold

increase on 2007, but still less than 1% of the potential market, found the report.

‘The potential for growth in the market is huge,’ said the research by Lane Clark & Peacock.

According to the report, the market has polarised into two main types of transaction: pensioner buyouts for continuing schemes, and full risk transfers designed to give companies a ‘clean break’ from their pension liabilities.

‘While pricing remains attractive, growth in the buyout market will be very strong,’ found the authors.

The research also noted the advent of syndicated buyouts, where schemes split risk between two or more insurers.

The authors said the credit crunch would have a dual impact: if it persists then it will allow insurers to keep their headline buyout prices low as they can access higher yields. All else being equal, the authors expect a hardening of prices towards the end of the year as demand picks up and insurers discount less aggressively.

The research said the typical buyout cost for pensioners is around 110% of the IAS19 liability value.

‘We estimate that 30% of FTSE 100 UK pension schemes are already funded at or above this level,’ said the report.

AEGON, AIG Life, Goldman Sachs (Rothesay Life), Legal & General, Lucida, MetLife, Norwich Union, Paternoster, Pension Insurance Corporation, Prudential and Synesis Life all contributed to the report.