Bulk Annuity Innovations for Smaller Pension Schemes
The last 18 months have seen a substantial investment by bulk annuity insurers in developing more efficient and effective ways for smaller pension schemes (typically below £100m) to access the pension risk transfer marketplace (despite the continuing substantial demand from much larger pension schemes for bulk annuities).
During our regular catch-ups with the bulk annuity insurers, the Pension Risk Transfer team at Spence has sought to develop a robust understanding of each solution in the market, as it is clear that there are differences (some material and some subtle) which need to be factored in when bringing smaller pension schemes to the market.
The solutions that have formally been launched are as follows:
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- Aviva – Clarity
- Just – Beacon
- L&G – Flow
- PIC – Mosaic
Beyond these four insurers, it is clear that other insurers active in the market are in the process of building their business case for developing similar solutions. This part of the private sector defined benefit pension scheme marketplace accounts for possibly 4,000+ of the circa 5,000+ private sector DB schemes (source, PPF Purple Book 2023), so effectively 80%+ of all possible future pension risk transfer transactions could be driven by the smaller end of the market.
2023 Bulk Annuity Trends: for Small and Ultra-Small Pension Schemes
In 2023, we saw a record total number of bulk annuity transactions in the UK – with over 220 deals being completed – but importantly, we believe in excess of 70% of these trades were for deals below £100m in size. Even what is often considered to be the poorly served ultra-small schemes (ie sub £10m in size) were extremely well supported by the market, with approximately 1 in 4 of all bulk annuity transactions in 2023 being for these schemes.
The key message to all Trustees and Sponsors of schemes below £100m in size is that, if you have determined that a bulk annuity is your desired/preferred end-game solution (once you have considered all your options for the long-term provision of benefits for your pension scheme members), then the pension risk transfer marketplace is currently flourishing for schemes like yours. Importantly, these streamlined solutions focussed on smaller schemes, also should make it more cost-effective to work your way through the process for securing a bulk annuity policy.
And, significantly, with recent new entrants also vying for transactions at the smaller end of the marketplace, finding at least one, or more likely more than one, insurer interested in engaging with your scheme, is likely only to improve in the short term.
Why Small Schemes Should Consider Bulk Annuities Now
The bulk annuity market is increasingly catering to the needs of smaller pension schemes, with innovative solutions and strong support now available. For trustees and sponsors of schemes below £100m, the message is clear: the pension risk transfer marketplace is flourishing, and now is an ideal time to consider your options. If a bulk annuity is your preferred end-game solution, these streamlined offerings can make the process more cost-effective and accessible.
We encourage you to reach out to our Pension Risk Transfer team to discuss how we can guide your scheme through this evolving landscape and secure the best possible outcome for your members.
