Following the Cable & Wireless transaction which, at around £1 billion, is the largest pensioner buy-in to date, Mercer has cautioned that while pensioner buy-ins remains an appropriate approach for some, they are not a panacea for all trustees or corporate sponsors.
According to Dave Robertson, worldwide partner in Mercer’s Financial Strategy Group:
“Risk reduction and improved security are often cited as key motivators behind such deals. However, tying up a significant part of the asset base in addressing the least risky liabilities would not be a sensible action for many schemes”.
Mr Robertson added,
“Feeling that you have ‘secured’ a substantial element of your liabilities may seem like a major step forward. However, in terms of risk reduction, the selling of bonds, cash and swaps – often held in respect of pensioners – and the purchase of an annuity policy may have limited impact, and will not necessarily mean increased security for the overall membership.
“Where trustees and companies have sought to fully understand the risks inherent in their pension schemes, they have often concluded that a buy-in is far from the top of the risk management priority list.”