From the blog: 2018 is predicted to see an unprecedented volume of pension schemes seeking to derisk using buy-ins or buyouts.
Given the finite resources of providers, pension schemes should expect a level of selection in what insurers will focus on – not all providers will necessarily quote on every transaction that comes to market.
This means schemes need to be well prepared when approaching the market to ensure the greatest level of interest from insurers.
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As affordability continues to improve, this trend sees no sign of abating. 2018 is predicted to see an unprecedented volume of pension schemes seeking to derisk using buy-ins or buyouts.
Schemes approaching insurers will, as a minimum, be expected to have done work to verify their data
While insurers certainly welcome the opportunities provided by this surge in demand, given the finite resources of providers, pension schemes should expect a level of selection in what insurers will focus on – not all providers will necessarily quote on every transaction that comes to market.
Be realistic
This means schemes need to be well prepared when approaching the market to ensure the greatest level of interest from insurers.
As well as taking steps to undertake due diligence on data and benefits and appoint suitable advisers, pension schemes with a clear strategy, well-defined approach and realistic pricing expectations are likely to be favoured.
Now, more than ever, being able to give insurers confidence that your scheme is well positioned to move forwards with a transaction is seen as a key requirement. Those schemes able to do this have the greatest possibility of achieving the best price.
Good data is a minimum
In the early days of the buy-in and buyout market, poor data and more speculative processes were cited as barriers to getting more deals done.
The market has moved on since then, and now schemes approaching insurers will, as a minimum, be expected to have done work to verify their data and clearly articulate the structure of their benefits.
In today’s fast-moving market, however, where garnering insurer interest is key to achieving best price, schemes should take the time to engage with insurers early in the process.
Trustees and sponsors need to demonstrate why insurers should focus on their opportunity rather than others in the market, and they should be ready to work with insurers to understand how the timing of a transaction can lead to better pricing.
Success has four pillars
Against this backdrop, before approaching the market, schemes should take the time to develop and be prepared to articulate:
clear long-term derisking objectives and strategy;
a target price for each transaction that is achievable;
a collaborative approach between trustees and sponsors that delivers a consistent message to insurers, for example by establishing a specific subcommittee or working group to approach the market, review proposals and take specialist advice, and;
a clear plan of the steps towards a potential transaction.
It is yet to be seen whether 2018 will see the record level of deals that commentators have predicted, but well-prepared schemes with well-defined plans will have the best chance of standing out from the crowd, and in doing so achieving best price in this busy market.
Justin Grainger is head of bulk purchase annuities at insurer Phoenix Group.
