Pension Fund Online blog - The Risk Transfer market boom

Adam Cottrell, Senior Consultant and Actuary at Quantum Advisory looks at the boom in the UK Pension risk transfer market.

While the infamous September 2022 mini budget may seem like a distant memory, the UK pension risk transfer market is booming.
Trustees are increasingly looking to secure pension benefits as their schemes enjoy improved funding positions. Whilst various options are available, insuring benefits with an insurer in the bulk annuity market remains the most popular choice.

Market dynamics

Insurers are adapting to a surge in demand, but capacity constraints across the industry are evident. New players like M&G, Royal London, Brookfield and Utmost have taken the total number of active insurers quoting for business into double digits. While increased competition may be beneficial for pension schemes, it also presents challenges. Insurers are able to be selective in the schemes they quote on when resources are stretched but are investing heavily in streamlining processes and offering simplified solutions, particularly for smaller schemes, which should help increase capacity over the medium term.

Given this evolving landscape, trustees must be well-prepared when considering buy-out. Securing competitive pricing is always essential, but navigating the administrative complexities of a buy-out is equally critical and is often the consideration that is left behind.

Data accuracy

At the heart of a successful buy-out transaction is accurate member data. Administrators must ensure that all relevant member information, including pension benefits, is complete, accurate, and up to date. Data inaccuracies can lead to increased costs, delays or jeopardise the integrity of the transaction.

As part of the verification process, a benefit audit will be needed, requiring administrators to verify the accuracy of pensions, both those already in payment and prospective entitlements. This can be an involved process for an administrator and, if discrepancies arise, benefit correction exercises could further strain resources.

Post-buy-in administrator responsibilities
The day-to-day responsibilities of an administrator will change post-buy-in. While routine tasks like calculating benefits and processing member requests continue, new activities are introduced, such as reporting to insurers on membership movements, drafting and issuing member communications and being well equipped to make sometimes significant data changes en-masse.

Trustees must ensure their administrators are equipped to manage these additional responsibilities. Robust processes and adequate staffing at the administrator is essential for successful delivery and, ultimately, for trustees to meet their contractual obligations to the insurer and avoid member dissatisfaction.

Collaboration for success

The success of a buy-in transaction relies on seamless coordination among trustees, sponsors, administrators, actuaries, other advisers and insurers from the outset. Engaging with administrators early on allows trustees to prepare realistically for the practical demands of a buy-out, and help to mitigate the risks of delay and under resourcing at critical times. Keeping the sponsor informed of transaction timing and pricing in real time is also usually beneficial, as it enables sponsors to move quickly when required.

Final thoughts

As the buy-in market evolves, increased competition may well benefit pension schemes through reduced premiums, streamlined offerings, and greater access to quotes, even for less favourable scheme profiles. However, the challenges of capacity constraints and resource limitations are real. Trustees must remain realistic, plan their path to buy-out diligently and choose their various advisers carefully.

By prioritising early planning and involving all key stakeholders from the outset, trustees will be able to successfully navigate the complexities of a buy-out project and secure positive outcomes for members, even in a challenging market.

About Adam
Adam is a Scheme Actuary and a key member of the Risk Transfer team at Quantum Advisory, leading our research and engagement with the major consolidators and master trust vehicles as well as project managing, delivering advice and preparing schemes for traditional insurer buyout exercises. He is also a member of Quantum’s Multi-Employer and Public Service Pensions team, focusing on helping employers manage the ongoing risks and costs associated with their multi-employer schemes, including LGPS, SHPS and Teachers Pension Schemes.