Credit crisis sparks pension buyout slump

"The problem is when you are making allowances for defaults in these markets you have to be extremely cautious," Wood said.

"As a trustee you have to be careful that you are not giving away your corporate bonds too cheaply and as an insurer it becomes difficult for us to say that we are buying it at a sensible price because it is so difficult to assess what the future default will be."

The bulk annuity market was expected to grow to 10 billion pounds in 2008, almost quadrupling the 2007 levels. So far, however, business of only around 6 billion pounds has been written this year. The overall capacity of the buyout market has been estimated at 40 billion pounds.

Wellsteed expects the market to slow down in the fourth quarter.

"Given how markets have been in the past month or so, the fourth quarter will be much quieter than in the first three quarters of the year. I expect total transactions worth 8 billion pounds or so this year."

Wood agreed: "If I were a trustee I would not trade at this point. I would wait until there is more confidence in our ability to predict how bond prices move over the coming months," he said.