The UK’s multi-billion pound
defined benefit (DB) pension scheme risk transfer market is to get
a new entrant in 2012: Long Acre Life. Founded by the former
chairman of The Pensions Regulator, David Norgrove, Long Acre has
set itself the objective of reducing the cost of DB pension scheme
buyouts by up to 20%.
Targeting schemes with
liabilities in excess of £500m ($780m), Long Acre’s solution has
been designed by DB analytics firm PensionsFirst of which Norgrove
is the chairman. PensionsFirst has an undisclosed stake in Long
Acre.
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Norgrove argues that the DB
pension fund risk transfer market currently lacks viable and
affordable solutions.
“This [Long Acre’s solution]
should change outcomes for both schemes and sponsors,” said
Norgrove.
The solution designed by
PensionsFirst is a variation of captive insurance used by many
large companies to insure their property and casualty risks so as
to retain the profit that would otherwise be paid to an insurer,
said Timothy Lyons, CEO of PensionsFirst.
However, Lyons stressed: “A
pure captive solution for delivering pension buyouts would
consolidate the pension liability on the sponsor’s balance sheet.
The solution that we have designed for Long Acre will deliver the
economic benefits of a captive solution through a mutually owned
insurance company, removing the need to consolidate the
liability.”
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By GlobalDataAccording to Long Acre, the
cost of DB pension scheme buyouts varies according to the specifics
of each scheme. But they are typically priced at about 140% of a
scheme’s liabilities as defined under International Accounting
Standard 19 (IAS19) and generally regarded as unaffordable. Long
Acre aims to reduce the ultimate cost of buyouts to around 120% of
IAS19 liabilities.
The UK’s Pension Protection
Fund reported that the combined deficit of private sector DB
pension schemes reached a new record of £222bn at the end of
November 2011.
This total was up from £158bn
a month earlier.
