Bulk Insured Pension companies reported a 50% increase of funds under management, of 22 billion to the end of 2008, according to new figures released by the ABI. The pensions of over half a million people are now covered by these funds. Responding to the increased interest, the ABI has produced a guide for trustees and companies explaining how Bulk Insured Pensions work. The guide is available to download at www.abi.org.uk.
A Bulk Insured Pension is the term for the purchase of a long-term insurance policy by the trustees of a Defined Benefit (DB) pension scheme to cover and protect scheme members’ pension rights.
There are two main changes for members of a scheme which becomes fully covered by an insurance policy. Firstly, their pension guarantee moves from a sponsor’s promise to a contract with an insurer.
As well using a company with experience in managing pension risks there is also the reassurance that insurers are regulated by the FSA and are required to hold large amounts of capital to meet their liabilities. Secondly, members are covered by the Financial Services Compensation Scheme (FSCS), giving consumers a higher level of protection.
“Trustees and corporate sponsors have never faced such a challenging environment,” says Peter Vipond, the ABI’s director of financial regulation. “Recent comments from the Pensions Regulator, that companies must fund pension deficits before paying dividends, reflect fears over the sustainability of final salary pension arrangements. The ABI’s guide will help trustees understand the range of insured options available. While Bulk Insured Pensions currently make up only a small proportion of total pension funds, there is increasing interest in the opportunities they provide. This is good news for those with DB pensions, as there would be no change in the pension promise. The obligation to pay their DB pension promises simply moves from the corporate sponsor to an insurer.”
D.C.