Small pension schemes should move quickly to get the best prices for medically underwritten annuities, Aon Hewitt said today.

According to the consultancy, providers keen to develop the medically underwritten market in bulk annuities are likely to offer good deals for small schemes that usually struggle to get good pricing.

Aon Hewitt's principal consultant in its Risk Settlement Group Dominic Grimley said: “It is unusual for small schemes to have the best opportunities, but as the market begins to gain momentum, providers are keen to gain a foothold and prove the concept – and that can lead to the kind of attractive pricing that is currently available.”

Four annuity providers – Partnership, Just Retirement, Legal & General and Avia – are currently involved in medically underwritten bulk annuities, in what the consultant says could be a “rapidly developing market”.

Grimley said: “While medically underwritten annuities will not be feasible for securing large pensioner populations, there is currently a window of opportunity to secure annuities on appealing terms for deals for up to 300 pensioners. This reflects the providers' desire to develop the market – and potentially has no impact on cash funding requirements.”

As well as the information used by traditional bulk annuity providers on members’ post codes, benefits and the nature of employer’s business, the new solutions also take into account individual members’ health and lifestyle. A report published by the Pensions Institute earlier this year suggested DB schemes could save 10 per cent or more using medical underwriting for derisking.

Grimley concluded: “Understanding the feasibility of the options available is important from a scheme governance perspective and potentially for the sponsor's bottom line too.”

Share Story: