Schemes risk missing out on competitively priced bulk annuities

08 December 2014


2015 is set to be another record-breaking year for bulk annuities; however, only the schemes that are adequately prepared will be able to transact quickly and at an advantageous price in 2015, according to JLT Employee Benefits.

2014 has been a record-breaking year in terms of volumes and sizes of bulk annuities written: the market has seen over £11.7bn of deals reported for the year to date. As the momentum builds further, JLT Employee Benefits and Trustee Solutions Limited are today launching a guide entitled ‘Getting your scheme buyout ready’1 to help trustees make the most of bulk annuity opportunities in 2015 and beyond.

The Chancellor’s Budget announcements in March led to an increased appetite for insurers to allocate more capital to bulk annuities, covering multiple pension scheme members, in light of a dramatic decline in the sales of individual annuities. Record-breaking deals in 2014 included the £3.6bn buy-in for the ICI Pension Fund and the £2.5bn partial buyout for TRW Automotive, illustrating the continuing trend for mega schemes to embrace bulk annuity solutions. 

JLT Employee Benefits says that despite the rapid growth in demand for bulk annuity transactions, recent activity shows that the marketplace can currently support transactions for almost any size of scheme. However, many schemes are unaware that adequate advance preparation is key to successfully timing the execution of a bulk annuity deal, if sponsors and trustees are to secure maximum insurer commitment and the keenest pricing. Therefore, trustees should ensure that all scheme-specific information and data management issues are resolved for when the right opportunity appears. 

For example, history has shown that at times of favourable pricing and extreme demand, as experienced in 20082, insurers have been unable to respond to all quotation requests received from schemes eager to transact. Poor quality data can not only affect buyout prices; in some cases it can put insurers off quoting at all. Preparing quotations cost time and money – according to some estimates between £5,000 and £10,000 per quote – so insurers are more likely to quote in the presence of good quality data and with potentially keener pricing as margins for data uncertainty are removed. 

In addition to resolving all of the data issues, trustees need to ensure a full appreciation of the promised benefits and give due consideration to the asset side of the equation. In particular, price movements on the bulk annuity quotation compared to scheme investment performance in the period leading up to the transaction. Trustees should also review the liquidity and marketability of their assets to ensure they are able to settle the bulk annuity premium within the timescales agreed with the insurer. The more prepared sponsors and trustees are in advance of transactions, the lower the chances of deals failing to transact or of unpleasant post-trade price surprises whereby final premiums reflect unfavourable post-transaction data cleanse adjustments. 

Martyn Phillips, Head of Buyouts, JLT Employee Benefits, said: “2015 is likely to be another strong year in the insurance de-risking market, so we could see schemes competing to secure their liabilities. We would challenge the idea that trustees will always be able to transact a buy-in or buyout when market conditions are favourable. In practice, there are many complexities that need to be considered, including having an agreed price target, clean data and well aligned investments, to demonstrate to insurers a strong commitment and ability to trade.

“This is why companies should prepare their data to avoid missing out on competitive prices. The schemes that are able to, and not just willing to, transact will be at the front of the queue.”  

Robert Lawrence, Trustee Solutions Limited, said: “The insurance de-risking market is a fast moving and developing area. For trustees, preparation is key. An experienced advisor with a proven track-record in this area will be able to assist the trustees with identifying the benefits to be secured, cleaning the data and putting in place an appropriate timetable within which to transact.”

1 The co-written guide combines JLT Employee Benefits’ knowledge of insurers’ data preferences and the most cost effective data cleansing/sourcing actions and Trustee Solutions Limited’s experience of understanding and managing extensive data preparation projects.

2 In 2008, total transactions in the bulk annuity market were £8.0bn. 


Notes to Editors 

JLT Employee Benefits: 
Jennifer Warner 
+44 (0)1344 464 582

Smithfield Consultants:
Andrew Wilde
+44 (0)20 7903 0661  

Ged Brumby 
+44 (0)20 7903 0674 
About JLT Employee Benefits 

JLT Employee Benefits is one of the UK's leading employee benefit providers offering a wide range of benefit and pension services, including administration, actuarial and pension consultancy, investment, Self Invested Personal Pensions (SIPPs) and Small Self Administered Schemes (SSASs) administration, flexible benefits, healthcare, benefit communication and financial education.
JLT Employee Benefits employs over 2,200 professionals throughout the UK and in 2013 had revenues of £172m in UK & Ireland.
Pensions and employee benefits companies within the JLT Employee Benefits group of companies include: JLT Benefit Solutions Ltd, Profund Solutions Limited, JLT Wealth Management Limited, JLT Investment Management Limited and Independent Trustee Services Limited. JLT Employee Benefits is part of Jardine Lloyd Thompson Group plc.

About Jardine Lloyd Thompson Group plc 

Jardine Lloyd Thompson is one of the world's largest providers of insurance and employee benefits related advice, brokerage and associated services. JLT's client proposition is built upon its deep specialist knowledge, client advocacy, tailored advice and service excellence.
JLT is quoted on the London Stock Exchange and owns offices in 39 territories with some 9,000 employees. Supported by the JLT International Network, it offers risk management and employee benefit solutions in 135 countries.