On the go: Insurers are set to be deluged with a flood of requests to restructure buy-in contracts as a result of the High Court decision in the Lloyds Banking case, which held that guaranteed minimum pensions must be equal for men and women.
Over £50bn of buy-ins exist in the market, with only a minority relating to schemes that have already equalised GMPs.
The need to address GMP equalisation could strain insurer capacity, particularly in the current environment where demand for buy-ins and buyouts is at an all-time high.
Schemes that have previously implemented bulk annuity policies and those looking to do so in the future will be affected.
Commenting, Mike Edwards, partner in Aon's Risk Settlement Group, said:
"Helpfully, the bulk annuity market has done a good job of anticipating an eventuality such as the Lloyds ruling with ‘future-proofing’ contractual provisions typically included. These enable schemes to restructure insured benefits to reflect things like GMP equalisation."
He continued: “However, the recent High Court judgment may lead to a range of methods being adopted by schemes, with some significantly more complicated than others. This has the potential to present a huge problem to insurers as – with an expected surge in requests from schemes to update existing insurance terms – detailed consideration will need to be given to each individual case from an administration, regulatory compliance and pricing perspective.”
Edwards warned that schemes considering buy-ins and buyouts in the future should take care.
“Alongside obvious considerations such as cost and administration, schemes also need to consider their long-term objectives when choosing between different methods for GMP equalisation," he said. "There is a variety of potentially viable methods and with that the risk that pension schemes may choose a method which is incompatible with what can be insured in the future."
