Insurance Buyouts: The Preferred Strategy for Pension Schemes

Innovations in defined benefit (DB) pension schemes and regulatory changes have broadened available strategies for scheme endgames, yet insurance buyouts remain the preferred option. Aon's survey of 350 pension schemes revealed that 75% aim for an insurance-based solution when feasible. Among those with an identified endgame strategy, 74% prefer bulk annuities.

Smaller pension schemes, particularly those with assets under £500 million, show a strong inclination towards bulk annuities, with 84% planning to insure when possible. According to Aon's James Patten, evolving insurer pricing models and potential surplus release directions could influence DB schemes' strategic planning. Fluctuations in asset and liability valuations due to geopolitical factors might also affect decision timelines.

Patten emphasized the importance of surplus policies, stating that 28% currently have agreements in place, while 31% plan to establish one within the year. He mentioned potential consequences of lacking a surplus policy, notably regarding capital return to sponsors and member satisfaction. Meanwhile, Standard Life completed a £200 million buy-in with the Abbey Life Assurance Company Limited Staff Pension Scheme, securing benefits for 1,500 individuals through a key de-risking step, facilitated by their relationship with the scheme's sponsor.

Neil Tointon, chair of the trustee board, highlighted meticulous preparation with Aon and Linklaters to achieve this milestone. Meanwhile, Just Group finalized a £4.5 million deal with The Access Group's DB scheme for 40 members. Broadstone, with HS Trustees, demonstrated expertise in navigating market dynamics, completing the transaction efficiently within four weeks.