The future of Britain's pension funds?

9 February 2006 By Simon Nixon

Investors are being asked to stump up for a handful of new buyout vehicles looking to take on the UK s £1,500bn of pension fund liabilities. The timing looks spot on. Companies are increasingly keen to offload their funds. And the existing duopoly is making fat margins.

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Competition in the UK market for bulk annuities is about to hot up. Entrepreneurs including Mark Wood, former head of Prudential's UK life operation, Isabel Hudson, another former Prudential employee and Edmund Truell, the founder of Duke Street Capital are actively raising funds to take on the liabilities of UK defined benefit pension schemes. Insurers Aviva and Aegon are also planning to enter this market.

Bulk annuities are insurance policies that protect a company against the risk of a shortfall in their defined benefit pension fund. They therefore enable a company to offload its pension liability completely from its own balance sheet.

The UK bulk annuity market is currently dominated by Prudential and Legal & General. Last year, it was worth approximately £2.5bn. Some industry experts believe it could grow six or sevenfold over the next few years as new regulations regarding the closing of pension deficits start to bite.

The UK has some £1.5 trillion of pension liabilities on a buyout basis.

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