Publication of the Purple Book from the Pension Protection Fund1 (PPF) has highlighted the intense competition in the de-risking market according to leading independent consultancy Broadstone.
The 2023 edition finds that 68% of Defined Benefit (DB) schemes with fewer than 100 members have buy-out funding ratios of over 100%. Given around 1,875 schemes comprise this universe it suggests that around 1,275 schemes could be ready to buy out in the immediate future.
Comparisons with the 2022 Purple Book highlight just how rapidly the buy-out pipeline has congested. Last year, just 18% of smaller schemes – amounting to around 330 schemes – had buy-out funding ratios of over 100%.
With nearly 1,000 smaller schemes now in a stronger position to begin engaging with the insurance market, preparation will only grow in importance according to Gavin Giles, Head of Pensions Administration at Broadstone.
“The number of smaller schemes who now find themselves in a position where they can realistically explore securing member benefits through buy-out has soared in the past 12 months,” he said.
“This is creating unprecedented demand in the insurance market as schemes battle to attract and engage insurers. For those at the smaller end of the market, this challenge is compounded by the fact that insurers are likely to focus on the larger, more commercially attractive transactions.”
The PPF’s universe is made up of 5,051 schemes – yet 1,875, or over a third (37%), are smaller schemes with fewer than 100 members.
Administration is set to be vital for smaller schemes looking to progress to buy-out over the next 12 months, said Gavin Giles, but insurers will naturally have to focus on this smaller segment soon.
“The most important action that small schemes hoping to buy out can take is engage specialist support to help sort their data and governance. Offering a well-prepared scheme is key as it will show the scheme is committed to the process and very importantly for insurers, limit the amount of their resource it is likely to take up.
“Services like Broadstone’s SM&RT Admin were specifically created to help schemes prepare their data and administration ahead of a buy-out.
“For smaller schemes, we also expect a natural re-alignment of the market as insurers snap up the largest transactions. With a deal-making superfund now operating in the market and a proposed public sector consolidator focused on the smaller segment, schemes must keep their foot down now to achieve endgame.”
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