In 2018 record numbers of trustees transitioned their pension liabilities to bulk annuity life insurers (buy-in and buy-out volumes reportedly reaching £18 billion by the end of the year) and analysts predict continuing (some say exponential) growth of this trend moving forward.
But specialist pension lawyers at ARC point out that trustee responsibilities don’t end there, creating a niche opportunity for corporate insurers to underwrite the residual liabilities for member claims which may arise in the years after the scheme is wound up. As the bulk annuity insurers become less keen to write cover for some of these risks (especially for smaller schemes), so there is scope for growth in this insurance market for corporate insurers as trustees and sponsors begin to understand these risks and pay more attention to the levels of cover needed.
Not all trustees and employers are as aware of the post winding-up risks presented by pension schemes after they have transitioned to the bulk annuity insurers and the insurance community will need to spend time educating them, but trustees and employers ignore the risks at their peril, because the risks of a pension scheme do not end on winding-up. Once the assets have been used to secure the benefits, the costs of dealing with post wind-up issues fall to the trustees themselves and often the sponsoring employers (which can come as a surprise to those who think a winding-up ends the exposure completely).
ARC partner Jane Kola explains where the gaps are that need cover: “No matter how much work the last trustees do before winding-up, they cannot eliminate the risk of all poor past decisions, misunderstandings of rules and pensions law which impact on benefits (like poorly handled deeds, misunderstandings on equalisation and discrimination issues), incorrect benefits due to duff data and the claims of those who have dropped off the members list but retain pension rights in the scheme which they claim later.”
This niche market promises some excellent business opportunities for corporate insurers and lawyers suggest they consider it as they make their plans for the year ahead.
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