UK Pension Regulator Warns Buy-Out Market Demand Could Exceed Capacity

The UKu2019s Pension Regulator warned that demand could outstrip supply in the domestic buy-out market as a combination of increased UK bond yields and higher than expected returns on returning seeking assets mean that 25% of schemes are now funded well enough to be offloaded to an insurer.

The pensions watchdog published its annual funding statement on 27 April, which analysed the funding position of roughly 75% of the UKu2019s pension schemes and it said that the gradual rise in UK bond yields in 2022 culminating in Octoberu2019s well publicised spike had radically changed funding positions in the sector.

While saying that trustees should now reconsider their long-term funding plans in the light of these changes it warned that those schemes opting for an outright buyout could face capacity constraints.

u201cThe buy-out market has limited capacity and if you are unprepared you might struggle to secure a provider, face a lengthier transaction process, and have to pay a higher premium,u201d the regulator said in its statement.

One exception are schemes which were exposed by their Liability Driven Investment (LDI) strategies, when UK gilt yields spiked last October. The regulator said that this cohort should revisit its funding and investment strategies.