Top tips for a successful approach to the bulk annuity market

The transaction total for pension scheme buy-ins and buyouts is expected to exceed £20bn by the end of 2018, according to Hymans Robertson research, and there are predictions that 2019 will surpass this record, 

There is no question that there are more schemes chasing buy-in deals than there are insurers willing to write that business – the long-predicted capacity crunch has arrived.

For well-funded schemes who are new to this market, the crunch in insurer capacity means trustees need to prepare their scheme for sale.

Remember that in the world of insurance, honesty is the best policy, but presentation is key

Employers should encourage trustees to invest in the process and make sure they are also fully committed to it.

Focus more on data

There are several top tips for a successful approach to the bulk annuity market.

First, stop focusing all attention on the investments. The investments are usually in good order and do not need the close attention they tend to get.

Second, make sure you focus on the data and data cleansing. What shape is the data really in? How in-depth has data cleansing actually been in practice? Does your administrator think the data is buy-in ready?  If not, get it buy-in ready.

It is also important to ensure you have the right advisers for the right job. A buy-in is a specialist project that demands special skills and in-depth experience which your existing advisers may not have.

You should also find all of your scheme deeds. The last set of rules rarely applies to everyone – you need the rest to confirm the membership’s legal entitlements.

Consider insurability of benefits

Another important task is to carry out an independent legal check of the administration against the scheme rules and pensions law to make sure the correct legal entitlements are being paid. Near enough is not really good enough. 

Furthermore, consider the insurability of the benefits. Some benefits are very expensive to insure, such as fixed factors. Where remodelling is legally possible this can transform the timeline to and price of a buy-in.

Think about how you would convert your discretionary benefits into member rights.

And where there are legal issues within the liabilities, take a rational and reasoned view of those risks.

Clear errors must be corrected, but so many legal issues are grey areas that contain legal risks trustees can take with employer support.

Remember that in the world of insurance, honesty is the best policy, but presentation is key. 

Jane Kola is a partner at Arc Pensions Law