In the survey, conducted over the last two years, 135 schemes (ranging in size from £1 million to over
£2 billion) answered 20 questions on their state of preparation to settle pension risk. In periods of favourable pricing for settlement transactions, schemes are likely to be jostling for the attention of resource pressured insurers and the least prepared risk missing out on opportunities.
John Baines, principal in Aon Hewitt's Risk Settlement Group said:
"This survey has shown that many schemes are still not in the state of preparedness that would give them the best chance of settling their pension risk when optimal pricing arises. Market opportunities to settle risk can arise at short notice – the current opportunities in the medically underwritten market are an example of that. Schemes that can demonstrate they are genuinely ready will be taken most seriously by insurers - and typically secure the most attractive terms.
“Even where risk settlement is not part of the short term strategy, understanding these issues will help schemes better understand the options available to them as they seek to achieve a greater degree of control within a pension stability framework.”
Key findings from the survey:
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Over half of trustee groups have not considered the potential implications of a transaction on the financing of the scheme
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Legal advice has only been taken in under one-third of schemes to check there are no obstacles to overcome before they can transact
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Almost a third of schemes have pension increases that might be complex to insure, yet the vast majority of these schemes have not considered how this might impact on any settlement activity
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Almost half of schemes do not have the comprehensive data they would need to access the best possible pricing
John Baines said:
“There are also many positives coming out of the survey, in particular with trustees increasingly recognising the need to be prepared, even if they have not yet taken all the necessary steps. Around 75% have received some form of settlement training, and over half of trustee boards monitor bulk annuity market pricing.
“Our survey has also covered schemes that have actually transacted. What this shows is that, while some preparation is essential, it's still rare for schemes to be perfectly 'settlement ready' in all areas when seeking bids.
“Trustees should gain some comfort that they need not wait until they have concluded every aspect of preparation before approaching the market - but the more prepared they are, the easier it should be to move ahead.”
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