Investment bank Goldman Sachs is set to cash in on changes in the life insurance sector with a new business to buy corporate pension schemes, a source familiar with the matter said on Tuesday.

The source confirmed news reports that the investment bank had applied to the country's financial watchdog, the Financial Services Authority, to set up a life assurance subsidiary, a necessary step before it can begin acquiring schemes.

The company, to be run by senior Goldman banker Addy Loudiadis, will be used as a vehicle to buy pension schemes which no longer take on new members, the source said.

Goldman Sachs and the Financial Services Authority declined to comment on Tuesday.

Pension liabilities, swollen by falling bond yields, have become a headache for firms as new accounting standards mean liabilities are treated like debt on their balance sheets.

Goldman joins a host of newcomers seeking to cash in on the pension problem as the bulk annuity business where insurers take on lumps of pension liabilities in exchange for upfront payments takes off.

The market, currently dominated by life insurers Legal & General and Prudential, is estimated to be worth up to 1 trillion pounds.

It has attracted former Prudential executives Mark Wood and Isabel Hudson, who have set up Paternoster and Synesis Life respectively, but also giants like Aviva and Aegon.

Start up players say they can use their expertise to manage pension funds more efficiently than the firms themselves.

Investment banks have been developing pensions expertise over the past decade, and Goldman now has one of the city's largest advisory teams. Last year, the bank advised retailer WH Smith's pension fund on a switch to a liability driven investment strategy.

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