What is a medically underwritten bulk annuity?
A medically underwritten bulk annuity (MUBA) transaction involves collecting medical and lifestyle information for the members whose pensions are to be covered by a deal. The collection of the information is done via a short questionnaire which each member is asked to complete.
By reviewing the provided information, an insurer is able to form a more informed view of the life expectancy of the individuals being covered when compared to a non-MUBA deal, where the insurer takes a more general view of the population using tools such as post code analysis.
What are the benefits of a medically underwritten bulk annuity?
In a bulk annuity deal where the insurer believes the members being covered have a lower life expectancy than the norm, a MUBA could cost less to the scheme than a traditional bulk annuity deal.
Some schemes undertake a ‘top slicing’ approach to their bulk annuity transaction. This involves identifying a small group of members who represent the largest liabilities and undertaking a MUBA for them, whilst using a non-medically underwritten approach for the rest of the members.
Is there a downside to a medically underwritten bulk annuity?
If, having gathered medical and lifestyle information, the insurer feels the members to be covered have a higher life expectancy than the norm, a MUBA could be more expensive to the scheme than a traditional bulk annuity arrangement. Importantly, if this is the case, the scheme is obligated to disclose this information should they decide to approach another insurer, which may in turn increase the quote that they would have otherwise received.
What else should I know?
The medically underwritten bulk annuity market has changed a lot since the first deal was struck in 2012.
Following the merger of two of the biggest insurers in the market (Just Retirement and Partnership Assurance) in 2016, there are now three insurers who offer medically underwritten bulk annuities.
All three – Aviva, Just and Legal & General – provide quotations on a traditional, non-MUBA basis or collect medical and lifestyle information prior to providing a medically underwritten bulk annuity quotation.
Just offers a third option which is to collect the medical and lifestyle information after the transaction. Whilst it guarantees that the original price won’t go up, a proportion of any improvement in pricing will be passed back to the scheme.
Whilst Aviva and Legal & General have the ability to transact a MUBA, Just is the biggest player in this market and offer.