The final salary sell-off: Firms set to sell off £30bn of pensions this year in a bid to cut their costs.

The pension transfer market is gearing up for £30bn of liabilities to change hands this year

A record number of businesses are trying to palm off their gold-plated pension schemes to insurers to save cash.

The pension transfer market is gearing up for £30billion of liabilities to change hands this year. This was researched by adviser Willis Towers Watson.

Many schemes face multi-billion pound funding gaps. This leaves firms desperate to pass responsibility for them to someone else.

But experts have warned it could be storing up problems by putting millions of pensioners’ savings. Placing this in the hands of a select few companies – leading to disaster if one went bust.

Professor David Blake of Cass Business School said: ‘You’re concentrating this risk in half a dozen insurance companies. With all these insurance companies searching for a return, it could affect the stability of financial markets.’

A separate study shows pension deficits at the 350 biggest listed companies more than trebled last year. 

The report by HR firm Mercer showed these businesses had £720 billion of assets. They would have to pay out an estimated £857billion to members – leaving a £137 billion funding gap.

Defined benefit schemes, which pay out a guaranteed annual percentage of a worker’s salary after their retirement, rely on Government bond yields to make their money. 

But these have been hammered by the Bank of England’s money printing and interest rates at an all-time low of 0.25 per cent.

Biggest deals so far 

Legal & General last year completed a £1.1bn buyout of the 11,000-strong Vickers Group pension scheme, part of Rolls-Royce. L&G also took on 22,000 pensioners in a £2.5bn agreement with TRW Automotive in 2014. Pension Insurance Corporation did a £1.5bn deal to take on EMI’s 20,000 members in 2013. Prudential Financial oversaw a £2.8bn buyout of 118,000 General Motors staff in 2012.

Large businesses are increasingly desperate to shift these liabilities. The issue has become more urgent since the collapse of BHS. This had more than 20,000 pensioners and a £571 million black hole.

In these circumstances, passing the buck to a specialist business can seem a simple solution.

Independent pension expert John Ralfe said: ‘It’s indicative of companies realising the risks are very considerable. The conventional ways of managing them didn’t work. They are wanting to concentrate on the business of running their company.’

Willis Towers Watson expects the overall value of transfers to recover to £30 billion.

Director Shelly Beard said: ‘Several deals are expected to trade in January, and more of our clients are approaching the market than ever.’


The Great Final Salary Sell-Off, Your Pensions Are At Risk
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