Smaller schemes must ‘work harder’ for attractive bulk annuity pricing

Smaller pension schemes must “work harder” to not miss out on attractive pricing for bulk annuity deals, Willis Towers Watson (WTW) has said.

In its De-risking report 2019 published today, 8 January, WTW said that smaller schemes must demonstrate a commitment to the transaction, with clear pricing and clean data, in order to earn a slice in what is predicted to be another bumper year for bulk annuities.

In 2018 the spotlight was on the mega deal, with over £20bn transacted over the 12 months, and many expect 2019 to continue in that vein.

WTW director, Matt Wiberg, said: “As we enter 2019 one area of focus for our team is helping to ensure that smaller schemes continue to get traction and attractive pricing, despite insurers naturally gravitating to the larger deals.

“In 2018, we saw insurers routinely declining to quote on transactions, particularly at the smaller end of the market, as they did not have the resources or capacity to write all of the deals in the market. When insurers decide which cases to work on, one of the key factors is how likely they believe the deal is to trade.”

Wiberg added that smaller schemes should “demonstrate commitment” by looking to engage the market through an initial transaction by running a full market process, which could also achieve a “better price outcome”.

According to the report, other trends for 2019 include alternative routes to buy outs, including commercial consolidators, “non-traditional” insurance products and fiduciary asset management.

Furthermore, WTW predict that macro headwinds from Brexit and the process of GMP equalisation may also effect deal activity throughout the year.

In November, Aon said that the High Court Judgement on GMP equalisation could mean that up to £50bn of buy-ins may need to be “restructured”.

WTW senior director, Shelly Beard, said: “2018 was a remarkable year for bulk annuities and de-risking innovation, and we expect to see more of this growth in 2019. There are, however, several significant factors at play which could sway the direction of travel.

“Whether that’s the ‘mega deal’ market impacting smaller schemes, macro headwinds or innovative de-risking solutions, trustees and sponsors need to ensure their de-risking strategy is firmly on the agenda in the year ahead.”

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