Introduction

Investment banks have been eyeing the massive pension deficits on the balance sheets of UK companies for some time. With corporates obliged to discount their pension schemes' liabilities using a discount rate based on AA-rated bond yields and to report this figure on their balance sheets, and with falling yields pushing the size of liabilities ever larger, banks thought there was plenty of scope to offer derivatives-based solutions to match assets with liabilities.

A number of financial insti

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