Pricing in the bulk annuity market has continued to improve through the first half of 2017 and it is expected that demand from schemes to derisk via a bulk annuity transaction will increase in the second half of the year. However, the available pricing is only half of the story; schemes need to be suitably prepared to move to a transaction and they need to know that the insurer is pricing the correct amount. This is where the administration teams of schemes achieving successful transactions are playing a key role - both in having access to correct data and in understanding its implications.
Gary Cowler, partner and head of Integrated Pensions Clients at Aon Hewitt, said: No two pension schemes are ever alike, so no-one scheme’s administration can be the same either. For much of the time a degree of uniformity in the way schemes approach their administration is fine, but the hard edge of a potential transaction focuses people’s minds and often exposes shortcomings in a scheme’s admin practices.
“Pensions administration is rarely straightforward and it’s always essential to stay firmly on top of it but risk settlement opportunities highlight just how well a scheme is administered – both in whether they are in command of their data and whether they actually understand it. This isn’t just letting a scheme ‘tick over’ but really having a deep knowledge of how the scheme and its members interact.”
Martin Bird, senior partner at Aon Hewitt and head of the Risk Settlement group, said: We have made much of the pricing opportunities that are currently emerging in the market but we have also encountered schemes which are simply not well placed to make a move because of administration issues or lack of accurate information.
“It’s not just a matter of clean data – although that is crucial. It’s as much about understanding that data – what does it tell you about member practices, what are the cashflow implications of member changes, is one tranche of your scheme particularly suited to a transaction?”
Martin Bird continued: The risks of using the wrong data are straightforward – very simply you can pay too much to insure a scheme. Alternatively, you can fall short and find you are not covered for the right amount. Either way, it’s an expensive mistake which can be relatively easily avoided.”
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