BPA boom: Who will be next to enter the market?

This week M&G announced two defined benefit (DB) pension scheme transactions. The move marked its re-entry to the bulk annuity purchase market. 

M&G was formed from the de-merger of Prudential PLC in 2019 and the UK insurance business became part of M&G plc; the company operated in the UK bulk annuity market between 1997 and 2016 under the Prudential brand.

At the start of 2023, pensions consultant LCP predicted that an additional insurer would enter the bulk purchase market this year, taking the total participants to nine.

The last entrant was Standard Life, part of Phoenix Group, in 2017. 

No one Pensions Expert spoke to wanted to be drawn on names, but all agreed that the entrants would be names from both the UK and overseas, and that some of them may be considering more specialised offerings.

Choice for trustees 

Charlie Finch, partner at LCP, said: “We predicted at the start of the year that we would see an additional insurer enter the bulk annuity market this year.

“It will be welcome news for many pension schemes as the additional capacity M&G brings will help ease the building pressure as a record volume of schemes seek quotations from insurers.”

“Scheme funding levels have continued to improve this year due to further rises in long-term interest rates and continued attractive pricing from insurers.”

Finch said that 2023 remained on track to hit a record £45bn of buy-in/out volumes. He said: “We project that as much as £600bn of pension liabilities could transfer to insurers over the next decade.

He admitted LCP was in discussions with a number of other insurers that are planning to enter the market over the next year, seeking to tap into the market’s growing potential.”

BPA market: More innovative providers in the wings

Mike Edwards, partner at Aon, said that as more schemes approach full funding, Aon expected continued innovation in this area. Edwards said: "M&G’s entry to the UK bulk annuity market will provide additional capacity and competition and this is most definitely welcome with demand from pension schemes for bulk annuities at an all-time high."

He added Aon was aware of a number of other prospective new insurer entrants looking at the market and, whilst the lead in time for this can be lengthy, it might “reasonably expect others to start quoting on transactions over 2024”.

Finch said more providers in the BPA market would be gooood news, although demand for buyouts has not - until now - signficantly pushed costs up. 

“More entrants will mean there is a good level of competition.” He added that investors are also eyeing insurers and reinsurers, which would create a virtuous circle of confidence in the market."

Finch added: “There was a lot of capital being invested in the BPA market through both insurers and exposure through reinsurers.”

Simon True, chief executive of Clara pensions, the only UK-authorised pension superfund, said he believed there were at least two other providers “waiting in the wings” ready to enter the BPA market.

Heading: What was the M&G deal?

Earlier this week M&G announced a £331m buy-in transaction of the M&G Group Pension Scheme (M&GGPS), one of the group’s own pension schemes, as well as a £286m bulk annuity transaction for an external scheme. The buy-in was insured through M&G's wholly owned life and pensions subsidiary Prudential. M&G said it had also completed a £286m bulk annuity (BPA) transaction for an external scheme.

The whole scheme buy-in for the M&GGPS secured the benefits of 1,414 pensioner and deferred members. M&G said active members were given the choice of either continuing with DB accrual in a different M&G group pension scheme, or becoming part of the bulk purchase transaction and joining a defined contribution arrangement for the future, with the timing of the buy-in closely aligned with that of the transfer to ensure the best outcome for all members.

BPA market: Who is in and who is out?