The risk transfer market will grow in 2014 globally as companies with defined benefit (DB) schemes in the UK, the Netherlands, Germany, Ireland, US and Canada become more ambitious in their efforts to eliminate pension risk, Mercer has said.
The consultancy also predicted that scheme will parcel liabilities into 'bite-sized chunks' to de-risk.
Global head of Mercer's DB risk team Frank Oldham said: "Globally, in 2013, we saw an increase in asset activity with active or dynamic de-risking coming to the fore.
"Organisations sought to lock in increases in return-seeking assets and increase their hedging of rates. We anticipate that the risk transfer market will thrive in 2014."
He said that the volume of buy-ins, buy-outs and longevity protection transactions steadily increased over 2013 in the UK and that Mercer saw more interest from pension schemes in the US and Canada.
According to Mercer, schemes are parcelling up specific chunks of liabilities to ensure that they can afford to take some risk off the table, for example, through pension increase exchange or other liability management exercises.
In the US, liability management tactics are becoming more common and there are now ways to offer cash-outs to deferred pensioners, pensions and even active members.
In Ireland and to an extent Germany, there are also instances of cash-out activity taking place.
In Germany, Mercer said that it anticipates more interest in advance funding through contractual trust agreements, for example, while in Holland the focus is on risk sharing with more organisations moving to collective defined contribution (CDC), while looking to de-risk their remaining legacy schemes.
Liability management exercises, such as the provision of flexible options for individuals in defined benefit (DB) plans at retirement are also becoming more common in the UK.
Mercer said that some of these exercises will be influenced by the Government's view of DB to defined contribution (DC) transfers, which is currently under consultation.
First published 05.06.2014
monique_simpson@wilmington.co.uk
