How schemes coped with derisking in 2012

Low gilt yields and swap rates made it a hard environment for schemes that wanted to derisk to do so while getting value for money.

But despite this, the MNOPF managed to insure the remaining liabilities of its legacy Old Section, Pensions Week reported earlier this week. This headed a late surge in the buy-in market, with General Motors and Tate & Lyle also securing deals.

Trustee chairman Peter McEwen put this down to the scheme moving into assets that would be attractive to insurers, and a huge communication drive to the fund's near-250 employers.

As Matt Barnes, partner at Pension Corporation, said in June (see video), buyouts this year have been generally "corporate-driven" rather than price-driven, with employers often choosing to top up scheme funding to meet insurers' offers.

"They typically have a corporate transaction or some other reason for wanting to solve the pensions [challenge] once and for all," he told Pensions Week editor David Rowley.

For those employers that have managed to derisk, the market has reacted favourably. In July, Pensions Week reported on how bulk annuity deals had boosted company shares.

But for many schemes, it has been too expensive to derisk. Last week, we analysed the decision faced by schemes such as the £382m Lloyds Superannuation Fund, which has not hit a derisking trigger since April 2011 – with pension manager Bob Clark saying it would be "foolish" to lock in at current levels.

Being ready and able to transact

In a difficult market, bulk annuity contracts have been popular during 2012, with relatively attractive pricing when compared with persistently low gilt yields.

Some pension funds have decided to swap their gilts for a buy-in of their pension population – protecting the retirement income of a slice of their membership.

In the same month, Pensions Week reported on West Midlands Integrated Transport Authority insuring £272m of its pensioner liabilities, in a groundbreaking deal for the Local Government Pension Scheme.

But less than 20 per cent of bulk annuity quotations proceed to transactions, according to derisking experts.

In an April edition of Pensions Week's Technical View feature, JLT's Tiziana Perrella looked at the steps needed to take advantage of positive market conditions if and when they arise, for example by setting price triggers with a pre-selected insurer.

"Once the trigger is hit, the trustees should be ready to act quickly, as a window of opportunity can open and close within a matter of days," she said.

With the derisking market, specifically the cost of UK government debt, not predicted to improve in the short term, this year's evidence suggests schemes that can move most quickly in 2013 will give themselves the best chance of a good deal for members.