Buyout as a de-risking option is gaining ground in Europe, following in the footsteps of the UK market which is leading the way.

According to the LCP Pensions Buyout 2011 report, Ireland and the Netherlands now offer attractive buyout opportunities, so multinationals should monitor their options overseas as well as in the UK.

Clive Wellsteed, partner at LCP said: “Ireland has some parallels with where the UK market was a number of years ago. In fact, some of the insurers who set up successful buy-in and buyout operations in the UK are now using the same teams to go over and put in place something similar in Ireland. That is shaking up the incumbent Irish market a little bit and that can only be a good thing as far as pricing is concerned.

“Also, in Ireland you have the possibility of sovereign annuities coming in, and while governing legislation isn’t finalised, that does provide another option to make annuitisation more affordable.”

The Netherlands, says the report, is the other European country where buyout is likely to take off. A full buyout, says the firm, will make sense for any smaller pension plans under €100 million as savings on expenses can be significant, while larger pension plans should also consider their options.

Wellsteed continued: “What is interesting there is that schemes typically set a funding target equal to 125% of their guaranteed liabilities, so what you would tend to find is that some schemes have more than enough money to secure their guaranteed liabilities. So some are saying, OK we will put a buy-in or a buyout in place for people’s guaranteed benefits and then offer them, using the money left over, a one-off increase in lieu of any discretionary increases they might have otherwise had.”

In 2010, LCP advised the Hilton hotel chain on a buyout of its Dutch pension plan. LCP identified that the company was able to transfer its entire past service liability to an insurer at no additional cash cost, to include an uplift to benefits to compensate members for the removal of possible future inflationary increases.

Some multinationals have also concluded deals in other European countries such as Sweden, Denmark and Switzerland.

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