Smaller defined benefit (DB) pension schemes could have a stronger opportunity to secure a buyout with an insurer as larger schemes increasingly consider running on, according to Zedra.
The professional trustee firm said growing interest in run-on strategies among bigger DB schemes is reducing the number of large deals entering the traditional insurer market.
“While run-on may not be a realistic endgame option for most smaller schemes, it is helping to create some of the most favourable buyout conditions they have seen in years.”
This has created more capacity for smaller transactions, with insurers directing more attention towards schemes that may previously have struggled to secure sustained engagement.
“While run-on may not be a realistic endgame option for most smaller schemes, it is helping to create some of the most favourable buyout conditions they have seen in years,” said Alastair Meeks, a client director at Zedra.
The shift marks a change from a market in which smaller schemes often found it harder to attract insurer interest, Zedra said. In some cases, schemes needed exclusivity arrangements to move a transaction forward.
“That is now becoming far less common,” Meeks continued. “Multiple insurer quotations are now more frequent, increasing competition and improving pricing for schemes that may previously have had limited options.”
Special report: Why the big deal about small bulk annuity transactions?
Smaller pension schemes have traditionally struggled to access the insurance market, but significant changes have made bulk annuity transfers more compelling, as Bradley Gerrard reports. Read the full article.
The comments come as more well-funded DB schemes assess whether to run on, rather than immediately move to insurance buyout, in order to use surplus, support sponsor objectives or improve member outcomes.
For smaller schemes, Zedra said the priority was to use the current conditions to test buyout readiness, including whether data and benefit specifications are in good order.
Meeks concluded: “For smaller schemes considering buy-out, the current market presents a valuable opportunity. Stronger insurer competition is creating greater choice and, in many cases, more attractive pricing than has been available in recent years… For schemes seeking the security of buyout, the current environment may offer a particularly attractive route to safe harbour.”
Pensions Expert has collated data on more than 300 bulk annuity transactions announced since the start of 2023. This clearly demonstrates the prevalence of sub-£100m transactions.
