The bulk annuity market may be affected by the rising appetite for alternative endgame solutions, such as “run on” options. An XPS report found a marked shift in the number of defined benefit schemes reconsidering their endgame ambitions, particularly among medium-to-large schemes.
This shift is partly due to the Pension Schemes Act, which includes a statutory resolution power for trustees, permitting modifications to scheme rules to allow access to surplus. A consultation on the specifics is currently underway.
For smaller pension schemes, the choices often remain straightforward and limited. Alexa Mitterhuber, director of pension risk transfer at Standard Life, says surplus release and the potential of run-on is not a driving factor pushing smaller schemes to consider buyout.
Instead, the rise in smaller transactions is a result of significantly improved funding levels, as well as more streamlined models from insurers. David Stewart, partner at LCP, notes that larger transactions are lumpier and will only come to market when buy-in is thought to be affordable and they have completed their preparation.
Insurance transactions are likely to remain a priority for schemes to access while they can. Iain Church, head of core transactions at Hyman Robertson, says there remains a high level of demand from pension schemes at all parts of the risk transfer market. The primary driver for trustees continues to be securing members’ benefits for the long term.
Related: Crorepati Count Surges 21% Under Interim Government
Jamie Cole, head of bulk annuity origination at Aviva, points out that member security remains central to trustee decision-making. Pension scheme size is also a critical factor, with larger schemes able to consider their options, while smaller schemes generally have fewer feasible options.
As the market evolves, scheme members and sponsoring employers will need to consider the pros and cons of each endgame option. The rise of run-on options may create more favorable buyout conditions for smaller schemes, but it’s unlikely to be a realistic option for most due to size restrictions.
Alastair Meeks, a client director at professional trustee firm Zedra, agrees that run-on may not be a realistic endgame option for most smaller schemes.
They are expecting insurance transactions to remain a key part of the bulk annuity market. The combination of healthier funding levels and greater surplus flexibility may turn heads, but the overall attractiveness of a buyout is likely to remain the top choice, according to consultants, as they consider better data and its impact on their decisions.
It is a complex situation.
Leave a Reply