Pension funds shift liabilities to insurers at record pace
Insurers expected to sell gilts after transfers
Move adds pressure on borrowing costs from QT, debt sales

LONDON, Sept 22 Reuters Britain39;s pensions industry, Europe39;s biggest, is posing a new challenge to the country39;s 2 trillion pound 2.5 trillion government bond market a year on from the minibudget crisis that put the sector at the centre of financial stability fears.

Pension funds are big buyers of UK debt, known as gilts, but they are likely to step back just as the Bank of England BoE reduces its own holdings faster and debt issuance remains high, adding pressure on British borrowing costs.

Benefiting from the highest interest rates since 2008, pension funds are better funded to meet future payouts than they have been in years.

To take advantage of this strength, funds are rushing to purchase bulk annuity policies from insurers, to whom they transfer pension liabilities along with some assets, reducing balance sheet uncertainty.

Because insurers hold a lot less government debt than pension funds, favouring higherreturn assets such as corporate debt, they are expected to sell some of the gilts they receive.

Big asset managers have turned positive on gilts recently, lured in by high yields and confidence that inflation is finally easing.

Yet the notion that pension funds, who along with insurers hold a quarter of outstanding gilts, may step back, is unsettling a year after a rout in gilts saw…