Ensure pension risk transfer decisions drive your scheme forward
Setting your scheme's long-term strategy is complex and the array of potential solutions bewildering. Mercer understands you only want the best outcome for your scheme’s stakeholders, so we help you weigh up the options, manage the risks and make the right decisions to help you achieve your goals.
Every year billions of UK pounds of defined benefit liabilities are transferred to insurers in the form of buy ins and buyouts or hedged using longevity swaps.
With the overall upward trend in annual deal volumes expected to continue, insurers are working with advisers to create new and innovative solutions to suit individual scheme needs.
This is the new normal of pension risk transfer and reflects high demand among maturing DB schemes to transfer pension risk.
In addition, more DB schemes than ever before are looking at providing their members with greater flexibility in how they access their benefits through member option exercises.
With expert guidance, trustees and sponsors can take advantage of the plethora of risk transfer solutions and seize the opportunities that will accelerate their journey to their endgame.
We can help you move forward.
£2.2bn
The largest bulk annuity transaction in 2021
£20bn
of bulk annuity transactions over 70 deals
≈25%
of all bulk annuity transactions
Are you looking to complete a deal of £100 million or less and concerned that you will struggle to attract the attention of insurers? We have developed a unique solution that could help you get more quotes more frequently from more insurers.
In today’s busy market for pension scheme buy ins and buyouts, smaller schemes often lose out. They often get fewer quotes from insurers or less keen pricing. Our solution is to streamline the process, making it easier for insurers to provide quotations and getting a better deal for schemes.
The Mercer Streamlined Quotation Service offers a more effective approach for smaller schemes than traditional broking methods. Insurers receive information from multiple schemes in a single file, in the same format and at the same time each month. This way, they can provide initial and repeat quotations more efficiently.
Every scheme receives its own quote, which means more quotations and, for insurers, clear visibility of the opportunities to transact. This can help smaller schemes access bulk annuity pricing and speed up the pension risk transfer process. Depending on the option taken, you will receive either a one-off or a regular report showing the indicative pricing from each insurer quoting for your scheme.
If the initial insurer quotation does not meet your target price, the regular reporting option allows you to monitor the bulk annuity position through monthly indicative price updates from one or more insurers, so you can see scheme-specific pricing opportunities as they arise.
Mercer Streamlined Quotation Service
Under a standard bulk annuity process, if you want a quote, a file with your scheme’s data is sent to the insurers.
The trouble is - the same thing happens for all other schemes that want a quote.
With more and more schemes requesting quotes, and with each quote costing the insurer as much as a small car to produce, not all schemes can get regular quotes.
And it’s often the smallest schemes – those under £100m – that are losing out.
They receive quotes from fewer insurers and less competition means they potentially pay more to transact.
Our solution – to take a fresh look and streamline the process.
Information from multiple schemes is sent in a single file to insurers, in the same format and at the same time each month.
Because this process is so streamlined it’s easier and cheaper for insurers to quote on more schemes each month – with each scheme receiving its own quote.
More insurers responding means potentially lower quotes, and more chance of regular updates means you can monitor prices and time a transaction to meet your needs.
Andrew Ward, Head of Risk Transfer
There is no ‘one size fits all’ approach to pension risk transfer. Each DB scheme has its own set of circumstances and strategic objectives.
Our first step will be to work with you and all relevant stakeholders to understand your DB scheme's strategic objectives. We will then work in partnership to identify the pension risk transfer solutions that are right for you and your members.
There are several solutions available for schemes in the process of assessing their DB pension risk transfer options. Mercer believes all DB pension schemes should be considering which risk transfer activities fit within their long-term strategy, along with how and when to deploy them.
Click on one of the options below to find out more.
A pension buy in involves the trustees purchasing a bulk annuity policy to cover some or all of their scheme's DB liabilities. Total market volumes of bulk annuity transactions have seen a step change in recent years to around £30 billion per annum. A wide range of factors, such as maturing schemes, sponsor contributions and financial market movements mean that many schemes are closer than they think to affording a buy in. Mercer has a strong track record for completing deals for its clients and advised on around a quarter of all transactions in the bulk annuity market over 2020 and 2021.
Smaller schemes can struggle to get quotations in a busy bulk annuity marketplace. Our Mercer Streamlined Quotation Service can help – it has helped Mercer advise over 20 sub-£50 million buy ins and lead on almost 30% of all sub-£100 million buy ins in 2021.
A pension buyout involves converting a buy in policy to a series of individual policies between the bulk annuity insurer and individual members. This allows trustees to discharge DB scheme liabilities. Mercer has taken hundreds of schemes through this process and has strong project management capabilities to support trustees and sponsors through pension buyout and wind-up.
There are a range of longevity hedging solutions that have been developed for pension schemes, and Mercer is the only adviser with experience of implementing each of these. Our expertise includes developing a unique small scheme offering, and helping clients understand whether it still makes sense to hedge longevity risk in the midst of a global pandemic.
There are a range of longevity hedging solutions that have been developed for pension schemes and Mercer is the only adviser with experience of implementing each of these, including deals of over £1 billion and deferred-heavy deals. Our expertise includes developing a unique small scheme offering, which has led to Mercer advising on seven out of eight of all sub-£500 million deals to end-2021.
Mercer has been involved with driving several hundred member options projects across a team of actuaries and communications specialists. They have deployed behavioural science techniques to improve member engagement. Mercer has also developed a unique artificial intelligence (AI) tool, which utilises the information from the thousands of member choices made in member options projects each year to determine the likelihood of each member accepting an offer in relation to their benefit.
A Government white paper opened the door to DB pension scheme consolidation, with two commercial consolidators emerging to date; Clara Pensions – assessed by the Pensions Regulator – and The Pensions Superfund, which is in assessment.
In a challenging economic environment, we would expect the more distressed employers to find this an attractive option. However, commercial consolidators, and indeed buy in and buyout providers, are just one end of the spectrum of consolidation options. Mercer has a team of consolidation experts covering risk transfer, covenant, DB master trust and investments who will help you work out what the right solution is for your scheme.
There are a growing number of other options available to trustees and sponsors who are looking to remove risk from their DB pension scheme.
2021 was a year of two halves for the DB pension scheme risk transfer market. The first six months were dominated by longevity swaps and small to mid-sized bulk annuity transactions, followed by a surge in bulk annuity deals over the second half of the year with almost £20bn written from July to December 2021.
While fewer ‘jumbo’ deals of over £1bn meant overall bulk annuity deal volumes were down on the previous two years, we did see record volumes of bulk annuity deals below £1bn in size, 10% higher than any other year. In addition, significant numbers of smaller bulk annuity were written with almost 65% of all 2021 deals for £100m or under.
The four longevity swaps in 2021, totaled around £15bn, the third highest year on record.
The first half of 2022 saw £19.6bn of risk transfer deals across bulk annuities and longevity swaps. This included the highest ever number (78) of bulk annuity deals completed in the first half of a year (33% higher than 2021), totalling £12bn. Over half these deals were between £10m and £100m.
We anticipate that a number of deals over £1bn will transact in the second half of the year and therefore expect total 2022 volumes of bulk annuities to reach £30-35bn.
Three longevity swaps totalling £7.6bn were also transacted in the first six months of 2022 and with a number of deals already lined up for completion, we expect this figure to increase by £10-£15bn by the end of the year.
Head of Risk Transfer
Risk Transfer Partner
Head of Longevity Solutions
Get in touch to discuss which pension risk transfer options might help achieve your scheme's strategic objectives.
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