Pensions - Articles - Beware ‘live pricing’ when considering a bulk annuity

  Aon Hewitt has cautioned UK pension schemes against being over-reliant on so called ‘live pricing feeds’ for bulk annuities.

 The ultimate objective for many pension schemes is the use of a bulk annuity to secure benefits with an insurer. It is therefore critical to understand when the timing is right to buy. ‘Live pricing feeds’ are widely available from the insurance providers and are a good indicator of general market pricing. However, these feeds are primarily driven by financial conditions and do not necessarily reflect what an individual scheme should reasonably expect to actually pay.

 Martin Bird, senior partner and head of Risk Settlement at Aon Hewitt, said:

 “It is not unusual to see a 10% variance between ’live pricing’ and the real price in a transaction. This is because genuine transaction pricing reflects the assets the scheme has available to fund the premium, the assets that an individual insurer may source to support a transaction and the pricing of the scheme's own demographic profile. For larger deals, the availability of longevity reinsurance capacity is also a major contributor to the final annuity price. A full understanding of all these individual pricing components is a must when assessing the value of any deal.”

 “So while we are hugely supportive of pricing feeds, it’s important that trustees and sponsors give careful thought about how and when is the optimal time to execute a transaction. A 10% improvement in price could make all the difference in deciding whether or not to pull the trigger.”