Sponsors react to bulk enhanced annuity surge

Since Partnership started offering a bulk annuity buy-in for scheme members who qualify for enhanced annuities, other providers, including Legal & General, Aviva, Just Retirement and Canada Life, have flocked to the market.

A bulk deal is yet to be completed but several sponsors are paying for the medical checks required to see if such a move might be a cost-effective way of getting scheme liabilities off their balance sheets.

And individual members of small defined benefit schemes, typically containing just famillies or a handful of friends running a firm, or those who would be better off under an enhanced annuity than their final salary arrangements, have been known to take these deals.

One unnamed company has offered its several hundred employees shopping vouchers in exchange for filling out the questionnaires needed to ascertain whether they qualify for the buy-ins and is now mulling over a buyout or buy-in deal.

LCP partner and derisking specialist Charlie Finch said he anticipates such a deal closing this year.

He added it was mostly suitable for small firms, as the cost of medically examining large numbers of people would eventually offset the savings from only buying out those expected not to live long into retirement.

And Aon Hewitt principal Paul Belok agreed, saying: “Schemes are being driven by companies to explore this and there’s certainly a lot of activity among providers.

“Obviously it’s something that’s been around for a while in the individual market, so it will be interesting to see if it translates to the bulk market.”