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Insurers are offering pension schemes discounts amounting to tens of tens of millions of kilos to rush through buyout and buy-in deals as they struggle to fulfill 12 months end targets.
Pensions buyout and buy-in deals — or bulk annuity transactions — where an insurer takes over the responsibility for meeting obligations to pensioners are complex deals which usually take six months or more to barter.
But advisers to a few of the largest UK pension schemes told the Financial Times that some deals were closing much faster as insurers look to speed up transactions into the present 12 months.
“Some insurers are approaching 12 months end having not written enough business, so are in search of deals to bring forward,” said John Baines, senior partner with Aon, the skilled services firm.
Some schemes had been offered a reduction of as much as 5 per cent to bring forward a transaction, Baines said, which could “comfortably” shave tens of tens of millions off the buyout premium for a scheme with billions of assets.
Stephen Purves, head of risk settlement with the consultancy XPS, said his firm had seen a handful of such offers made in recent months.
“In late October early November a few insurers asked if any clients can be prepared to speed up a transaction, with some really competitive pricing offered,” said Purves. Discounts were within the range of 3-5 per cent, he added.
Lara Desay, head of Risk Transfer with consultants Hymans Robertsons, said the insurers involved in these approaches typically had targets to fulfill.
“Some want to write down quite a few deals by the top of the 12 months or they’re targeting a set volume of liabilities,” she said.
Competition in the majority annuity market has stepped up with the doorway of two recent players this 12 months. Royal London, which entered this 12 months, said its pricing strategy was commercially sensitive.
Not less than yet one more provider is anticipated to enter the market in 2025, with the worth of bulk annuity deals in 2024 estimated to hit around £45bn-£60bn.
Three of the biggest players, PIC, Rothesay and Aviva, said they didn’t do pricing incentives to fulfill sales targets but declined to formally comment.
A fourth, L&G, said it didn’t offer discounts for pension schemes to speed up bulk annuity transactions.
It added: “Trustees, sponsoring corporations and their advisers are all the time very clear with us on what their timing requirements are, and we work to accommodate them, in addition to being transparent that prevailing market conditions on the time of quoting/transaction may impact price.”
Standard Life, which is owned by Phoenix Group, the UK’s largest retirement savings business, told the Financial Times: “We operate in a competitive market and sometimes opportunities do arise for trustees of pension schemes who decide to partner with us, or those that have efficient governance structures in place and might reveal flexibility regarding their transaction timescales.
“Nevertheless, this just isn’t a singular feature of the financial 12 months end and is linked to aspects similar to asset origination opportunities which enable us to enhance our pricing for a pension scheme for a brief period.”
