Edumund Truell's London-based Pension Corporation has failed to take over its rival London-based pension buy-out vehicle Paternoster headed by Mark Wood, a former Prudential executive.

Talks which had been in progress for several weeks failed over price last week, according to a person involved in the deal, leaving Paternoster unable to operate until market conditions improved.

There is little doubt about Paternoster's ability to continue to pay benefits to its roughly 100,000 pensioners, according to well informed sources, but the company has voluntarily changed regulatory permissions as it will not be taking on any new pensions business.

Capital bases at all life assurances and pensions businesses have been adversely affected as the crisis in credit markets has led to an increase in the cash reserves with the businesses needing to hold more cash as reserves against their liabilities towards policyholders.

Paternoster is unlikely to look for a deal with another investor as a person close to the company said it would not raise new capital until markets reopened. There would also not be much buy-out activity to pursue in any case, he added.

The growth of the buy-out market has come about around failed companies, however participants have looked at active businesses that might also want to offload risks related to corporate pension liabilities.

The industry has been experiencing a difficult period with the turmoil sparked by the credit crisis, that has resulted in a sharp rise in scheme deficits. Companies must address these deficits before offloading their pension liabilities in a buy-out deal. However, this option is not open to most companies that would like to pursue it simply as they can not afford it.

Prudential and Legal & General once dominated pension buy-outs until a number of smaller, specialist firms backed by private equity came on the scene earlier this decade.

Rothsay Life and Lucida run by Goldman Sachs and Jonathan Bloomer respectively are other specialist firms in the business. Jonathan Bloomer is a former Prudential executive.

According to analysts, the fact that Pension Corporation was eyeing Paternoster is an indication of the company holding capital to pursue new business through deals or pension scheme buyouts.

According to one person close to Truell, there were no similar deals in the pipeline. He added that it would be in a position to pursue an opportunity if one came up.