LONDON — 2017 could see a boom in companies getting rid of ballooning pension deficits by paying insurers to take on the plans.
The Financial Times reports that Willis Towers Watson, a leading insurance broker, expects pension “buyouts” to rise to as much as £30 billion ($36.8 billion) in 2017, up from £11 billion in 2016.
John Towner, head of origination at Legal & General, told the FT: “There are a lot of pension schemes in the market looking for quotes. You are through Brexit and the US election, and interest rates have come up a bit.”
Buyouts are where companies pay for insurers to take over pension schemes that they are liable for. Businesses are increasingly turning to buyouts because low interest rates make it harder to earn the money through investments needed to meet all future pension commitments. As a result, schemes are getting more expensive and deficits are ballooning — an estimate this summer put the corporate funding shortfall at £400 billion.
Pension deficits were at the centre of two major stories in 2016: the collapse of BHS and Tata Steel. Sir Philip Green, BHS’ former owner, was accused of walking away from the department store’s estimated £275 million pension scheme blackhole and has faced extensive pressure from MPs and the press to fund the deficit. Tata Steel’s own pension shortfall has been blamed for the protracted rescue process, with the big liability putting off potential investors.
You can read the full FT story here.