Survey finds desire to transfer pension liabilities

LONDON—Insurance companies could be in line for an increased proportion of the pension market if they can drive down the cost of transferring liabilities.

At a recent Watson Wyatt conference, one in four of the delegates from companies with defined benefit schemes said that they would look to transfer their pension liabilities to insurance companies in the next five years if the cost reduces sufficiently.

"This is good news for insurance companies, because it means more business for them," said Andrew Reid, head of corporate consulting at Watson Wyatt.

"The recent increased capacity of the buy-out market has encouraged speculation that many companies will soon be transferring their defined benefit pension schemes to insurers," he said.

Reid explained that pension schemes presented companies with increased costs and risks, but that the cost of transferring their liabilities to insurance companies remains prohibitive.

"Insurance companies are subject to very strict reserving and capital requirements, while a public limited company with a pension scheme can be more flexible at least financially," he said. He also warned that the capacity of the buy-out market might prevent pension schemes from transferring liabilities.

Three in four of the delegates said they will continue to operate their pension schemes for the foreseeable future, and a similar number plan to contain their liabilities using measures such as the breaking of the link of benefits with salary or offering inducements to scheme members to transfer out.