Pension Capital Strategies Limited (PCS) has launched a half yearly Buyout Market Watch report, reviewing the last 12 months in the buyout market with a view on the market for the rest of 2008 and long term.
“We have seen increased development in the buyout market over the last 12 months and its growing impact on Defined Benefit pension schemes,” says Charles Cowling, managing director, PCS. “We predict prices will continue to be low for the rest of 2008 with the gap between IAS19 and buyouts becoming even lower for immediate annuitants. Growing pressure from the Pensions Regulator and changing accounting standards are encouraging de-risking in pension schemes. Companies therefore need to face their pension commitments head on, particularly if they are looking at re-structuring or merger opportunities. Increasingly this means looking at buyout opportunities”.
The attraction of a buyout solution is linked to four key factors: – Regulations, the financial health of the pension scheme, the excess cost over the accounting reserve and market sentiment. In the last 12 months all these factors have been swinging in favour of a buyout solution.
“We have tracked the prices in the buyout market against FRS17/IAS19 values to create the PCS Affordability Index,” says Cowling. “This Index suggests now is the best time to buyout for at least a decade and may even represent a lower cost than the published accounting figures. We expect there to be one or more multi-billion pound insurance-based buyout deals by the end of the year, shattering the record of the largest deal, which is currently 800m in respect of P&O. However, we are already seeing signs of consolidation in the market and so, in the long term we expect prices to increase as some participants reach their capacity and others drop out of the market”.
The full PCS Buyout Market Watch Report is available on the PCS website at: www.pensionstrategies.co.uk.