Opportunities and threats for DB pension schemes
How to get the best deal in a busy buy-in market
26 Jul 2019
More and more schemes are approaching the pension scheme end game – which for many means considering how to secure the liabilities with an insurance company.
With £24.2bn of deals, 2018 was a record year for the amount of pension scheme bulk annuity transactions. This trend has continued into 2019 with total transactions likely to exceed £30bn.
This is creating challenges and opportunities for both pension schemes and insurers.
In particular, pension schemes are finding that insurers are being more selective in providing a quotation and that buy-in pricing is more changeable, both between insurers and over time for the same insurer.
Crucially though, as shown in the chart below, schemes continue to be able to secure a buy-in at a yield higher than that available on gilts (i.e. the green bold line is above the blue line).
Source: Hymans Robertson’s Buy-in Monitoring Service
So attractive pricing is available and schemes will improve their chances of getting a good deal if they are well prepared and engaging with insurers early.
Adopting a patient approach will give insurers time to offer their best possible pricing. Schemes that have set clear objectives at the outset will be well placed to assess insurer pricing quickly and take advantage efficiently when the time is right.
With changing market dynamics, strong relationships and a close knowledge of insurers and their motivations will put schemes at a distinct advantage in getting greater engagement and the best possible pricing. For example, it’s important to consider the issues affecting insurers – in particular, their financial year end targets, pipeline of assets and other business volumes. This will help inform schemes’ decision making on the optimal timing and structure of a potential buy-in.
The future uncertainty in pricing also highlights the benefits to schemes of completing a series of buy-ins over time instead of waiting till the end and having to complete one big buy-out when pricing could be unfavourable.
Our 2019 risk report (due to be released in late autumn 2019) will explore in more detail how schemes can skilfully navigate the current market and consider what insurers look for when deciding where to allocate their resources and hence their best pricing.