Small schemes at risk of being 'crowded out' of buy-in and buyout market

Small schemes are at risk of being ‘crowded out’ of the buy-in and buy-out market and receiving higher pricing, LCP has warned.

According to the consultancy firm, with over £10bn buy-in and buyout transactions becoming the norm, small schemes that fail to get engaged pricing from insurers can pay up to 5 per cent more – resulting in extra cost or the transaction not completing.

Over 2014 and 2015 there was a 25 per cent year-on-year reduction in the number of buy-ins and buy-outs under £100m as some insurers focused on larger transactions.

LCP said for smaller schemes looking to de-risk, it is therefore “more important than ever” that they are at the front of the queue when insurers decide which transactions to prioritise.

It added that a streamlined service with pre-negotiated insurer contracts can help to make smaller schemes more attractive for insurers.

“The evidence shows that smaller schemes are struggling to get engagement from insurers, particularly for full buy-outs,” LCP Partner David Stewart said.

Following the introduction of Solvency II and the influence of volatile market conditions, Aon Hewitt last month announced bulk annuity pricing was much ‘less predictable’ over January.

In its bulk annuity market monitor for January, the firm said that at present, there is substantial capacity in the annuity market, but this will reduce through the year as business is placed.

Aon encouraged schemes not to hold off from getting prepared for a bulk annuity purchase, especially as history shows schemes waiting for stable pricing before planning a bulk annuity purchase miss opportunities that arise.

In addition, the report stated bulk annuity pricing for pensioners is similar now to at the start of 2015. For example, the most attractive pricing gives a yield similar to, and potentially better, than that of available gilts.

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