UK pension buyouts could hit 10 bln stg in 08-LCP

LONDON, May 8 (Reuters) - The value of pension buyout deals in the UK could hit 10 billion pounds ($20 billion) in 2008, a three-fold increase on last year, a report by pensions advisory firm Lane Clarke & Peacock (LCP) said on Thursday.

The first billion-pound pension deal is also just around the corner, LCP said.

"We see the first major FTSE 100 pension scheme buyout as inevitable and likely to be imminent," the report said.

At least seven 1 billion-pound-plus schemes and 10 FTSE 100 schemes are currently considering bids from insurance companies to buy out some or all of their pension liabilities, LCP said.

Increasing numbers of firms are looking to offload their defined-benefit pension schemes, which guarantee employees an income in retirement linked to their final salary.

Tougher regulation and proposed accounting changes, which could force firms to pump billions of pounds extra into their schemes, have made these pension arrangements an increasing financial headache for many companies.

Competition between buyout firms, who assume companies' occupational-pension scheme liabilities for a price, has caused the cost of doing deals to tumble, which is likely to fuel strong growth in the market this year.

The typical premium charged by buyout insurers for taking on the liabilities of members who are already pensioners in schemes is around 10 percent of the value of those liabilities, providing the liabilities are already fully matched by assets, LCP said. Around a third of blue-chip firms' pension schemes are already at that 110 percent level, it said.

But prices are likely to rise towards the end of the year as demand picks up, meaning insurers do not have to cut prices so aggressively to attract business, the report said.

Companies such as Legal & General (LGEN.L), Paternoster, Pension Corporation, Synesis Life are competing with Aviva (AV.L), Aegon (AEGN.AS), AIG (AIG.N) and Synesis for a slice of a market valued at around 1 trillion pounds.

The credit crunch will allow the buyout insurers to keep a lid on their prices, as they will be able to make higher returns on the assets they invest, LCP said. But it could also prevent some from accessing fresh capital to write more business. (Reporting by Simon Challis; Editing by Richard Hubbard)