It is rare that tougher regulation creates a bigger capitalist opportunity. But this holds true for the burgeoning industry of buying out corporate pension funds. A host of banks and insurers, including Goldman Sachs, hope to participate.

The separation of companies and pension schemes is, conceptually, a good thing. In the UK, FTSE 100 companies, as well as running operating businesses, effectively manage a giant non-core savings business with gross liabilities and assets of over £300bn. Furthermore taking on bond-like liabilities (the guarantees made to pensioners), buying a load of riskier assets like equities and hoping that the latter grow faster than the former, is a common business model. It is exactly what most hedge funds and life insurance companies do.

The trouble is that companies are generally allowed to run underfunded pension schemes because their operating businesses offer security that in the last resort the scheme will be bailed out. In the UK, the FTSE 100's liabilities are only 90 per cent funded on an IAS19 basis. With no operating assets, third-party owners rightly are subject to harsher insurance-style rules and so-called 'buy-out' valuation techniques. Were the entire FTSE100 to shift from the corporate pension regime to the insurance industry's, it would have to fund its IAS19 liability to the tune of 130-140 per cent, rather than 90 per cent.

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