A Second Pension-Scheme Revolution

(Mar 20, 2014)

In his book Unseen Revolution, Peter Drucker drew attention to the structural changes in economic ownership which were silently ushered in with the growth of corporate pension schemes.  Decades later these changes had turned the pension scheme into the dominant item on some companies' balance sheets. Other companies experienced even more dramatic consequences.

However, there is currently a second revolution underway amongst UK pension schemes, at least in the private sector.  This revolution will have a large impact on the corporate landscape.  To illustrate why, we begin with the number of active members of private-sector, defined-benefit pension schemes in the UK, i.e. working people accruing benefits,…

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Tags: pension schemes, bulk annuities, buy-out

The ins and outs of bulk annuities

(Apr 14, 2013)

The UK has a well developed and highly competitive market in bulk annuities. These typically arise when a defined-benefit pension scheme wants to insure its liabilities. The most obvious scenario is when a pension scheme is being wound up and benefits have to be secured with an insurance company.  Since the pension scheme is ceasing to exist, individual policies are purchased for each member. The now-former pension-scheme member owns his or her own annuity policy, which cannot be surrendered or transferred once annuity payments start.  All risks such as longevity and investment are transferred to the insurer in a transaction known as a buy-out.

However, there is another option called a buy-in - the scheme…

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Tags: bulk annuities, buy-ins, buy-outs, survival models

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