The cost of buying-out defined benefit pension liabilities has reduced significantly over the last 18 months as the marketplace becomes more competitive, says Paternoster.
It says the findings from a pricing analysis reveal the cost of buying-out pensioners’ benefits has fallen 6.5%, while the cost of buying out deferred members' benefits has dropped more than 11%.
Paternoster, one of the most recent entrants to the bulk annuity market, says these price savings are positive news for trustees looking to secure benefits for members of their final salary scheme.
Mark Wood, chief executive of Paternoster, says the cost reduction is predominantly down to the increased yields on bonds invested, as the cost of providing a given level of pension falls as yields rise.
He points out prices are also "being influenced by increased competition in the marketplace", as in the last year the bulk annuity sector has gone from a duopoly to a potentially segmented market, with AIG, Synesis Life and Aegon all targeting different parts of the sector.
However, Wood warns: “There is a danger that only with the benefit of hindsight will trustee boards and their advisers see that they may have missed an opportunity to secure their defined benefit pension promise by buying out schemes as deficits close.”
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