The pension buyout market in the UK has the potential for staggering future growth with an estimated £1.3 trillion held in defined benefit (DB) liabilities against £8bn of buyout business being written in 2008.

The surface has only just been scratched for those seeking to manage these assets, with existing life offices and new entrants fighting to win new business from those employers that have decided the risks and costs of DB schemes are too great a burden to continue.

At present, there is a lull in buyout business. Many employers cannot afford to offload their final salary pensions in current market conditions, with asset values down and low interest rates pushing up the cost of pensions.

But while only a very small proportion of schemes have actually bought out their liabilities, Mark Wood, chief executive of buyout specialist Paternoster, said it has given quotes for £700-800bn worth of buyouts in the last 18 months alone.

This bears out Wood’s contention that aside from DB schemes at the large, blue-chip employers in the FTSE 100, which account for around £600bn in liabilities, all other private sectors schemes are candidates for a pension buyout.

Many employers are acutely aware that the option of passing on their DB liabilities now exists and can hardly wait until conditions improve to make buyouts more affordable.

One pension consultant told CoreData that many employers have charged a senior member of the management team with co-ordinating a future buyout, with the manager’s own retirement and final salary pension the carrot for a successful outcome.

For many scheme members, a pension buyout is actually a good thing.

Insurance companies are subject to tougher solvency rules than employer-sponsored schemes and the compensation scheme for any failed insurers is more generous than the lifeboat for holed DB schemes, the Pension Protection Fund.

Scheme trustees are also likely to welcome buyouts as a respite for the onerous burden of overseeing a pension scheme in today’s volatile market.

In fact, one of the main questions is where the capital is going to come from to back future buyouts.

Insurers are taking on a long tail liability and need plenty of assets to cover lifetime pensions as life expectancy rises.

It’s a big if, but if economic conditions improve in the next few years, there could be a stampede for the buyout door, as employers rush to shed their DB responsibilities before the available supply of capital is exhausted.