Pensions - Articles - Demand to derisk via bulk annuities expected to increase

Aon has said that while good pensions administration practices are playing an important role in successful risk settlement exercises, many schemes are still not ready to move swiftly at a time when pricing is especially favourable.

 Pricing in the bulk annuity market has continued to improve through the first half of 2017 and it is expected that demand from schemes to derisk via a bulk annuity transaction will increase in the second half of the year. However, the available pricing is only half of the story; schemes need to be suitably prepared to move to a transaction and they need to know that the insurer is pricing the correct amount. This is where the administration teams of schemes achieving successful transactions are playing a key role - both in having access to correct data and in understanding its implications.

 Gary Cowler, partner and head of Integrated Pensions Clients at Aon Hewitt, said: No two pension schemes are ever alike, so no-one scheme’s administration can be the same either. For much of the time a degree of uniformity in the way schemes approach their administration is fine, but the hard edge of a potential transaction focuses people’s minds and often exposes shortcomings in a scheme’s admin practices.

 “Pensions administration is rarely straightforward and it’s always essential to stay firmly on top of it but risk settlement opportunities highlight just how well a scheme is administered – both in whether they are in command of their data and whether they actually understand it. This isn’t just letting a scheme ‘tick over’ but really having a deep knowledge of how the scheme and its members interact.”

 Martin Bird, senior partner at Aon Hewitt and head of the Risk Settlement group, said: We have made much of the pricing opportunities that are currently emerging in the market but we have also encountered schemes which are simply not well placed to make a move because of administration issues or lack of accurate information.

 “It’s not just a matter of clean data – although that is crucial. It’s as much about understanding that data – what does it tell you about member practices, what are the cashflow implications of member changes, is one tranche of your scheme particularly suited to a transaction?”

 Martin Bird continued: The risks of using the wrong data are straightforward – very simply you can pay too much to insure a scheme. Alternatively, you can fall short and find you are not covered for the right amount. Either way, it’s an expensive mistake which can be relatively easily avoided.”

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