July 24, 2007 / 9:32 AM / 12 years ago

Government considers bulk annuities to reduce FAS costs

LONDON (Citywire) - The government is considering using bulk annuitisation to bring down the cost of funding its compensation scheme for members of insolvent pensions.

The Financial Assistance Scheme (FAS) was launched to provide compensation for 125,000 people left without a pension when their final salary schemes collapsed before the Pension Protection Fund was established.

An interim report by deputy government actuary Andrew Young for the Department for Work and Pensions examined various ways in which this money could be raised without using public funds, including using unclaimed assets from banks, building societies and life companies.

It also suggested that FAS costs could be driven down by bundling together schemes when negotiating annuity contracts rather than doing it individually. One option is to buy annuities for blocks of scheme members who are a similar amount of time from retirement.

This could reduce administration costs, improve the FAS’s negotiating position with life companies and make mortality calculations more stable and easier to predict.

One life company estimates this could reduce scheme costs by at least 5 percent. Andrew Tully, marketing technical manager at Standard Life, said: “I might have a slight impact but it’s not going to have a dramatic impact.”

c Citywire Financial Publishers Ltd 2007.

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