UK pension trustees raise alarm on transferring risks offshore

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Senior industry professionals say they are worried about the growing involvement of overseas reinsurance firms operating outside UK regulation in corporate pension deals.

Many UK businesses with large pension schemes have offloaded them to life insurance companies. These “buyouts” — of pension plans and the assets backing them — are regarded as the gold standard for safeguarding benefits.

But as higher interest rates improved pension scheme funding levels, prompting a record £50bn of corporate pension deals last year, some UK life insurers have passed on portions of these pension scheme assets and liabilities to reinsurers, often based in Bermuda. Such “funded reinsurance” deals reduce capital requirements for life insurers, making it easier for them to do further deals.

“We don’t believe we fully understand the risks associated with these offshore insurance companies,” said Natalie Winterfrost, a professional trustee and former chair of the investment committee at The Society of Pension Professionals.

“They will be subject to different and potentially less stringent regulatory oversight.”

She added: “This is where the disquiet comes in for trustees — and their advisers too.” 

Victoria Tillbrook, a UK pensions expert at consultancy PwC, said “more and more” trustees wanted to fully understand developments in what insurers were doing, what was being reinsured and the position of the UK’s Financial Services Compensation Scheme, which compensates customers if a financial business fails.

Melanie Cusack, a professional trustee at Zedra, a corporate services business said: “More questions are being asked: if something happens to the reinsurer, what happens to the members?”

The Bank of England’s Prudential Regulation Authority, which supervises insurers, declined to comment. 

But it warned the industry last year that…