The growth in the UK pension risk transfer (PRT) market in the past few years has been accelerated by the recent rises in interest rates, the effect of which has been an increase in many defined benefit pension funds’ balance sheet readiness for a buy-out or buy-in solution.
On the surface, seeing a significant growth in deals is music to the ears of the ecosystem at large; an array of lawyers, salespeople, actuaries and analysts.
But underneath the headline numbers lurks a formidable obstacle – that of a lack of people power to absorb the glut of work.
“The real constraint in terms of the amount of deals we can do is people. PRT is quite a complex world, transactions are quite challenging to price, structure and execute, they involve a lot of parties, and they are time consuming,” said Andy McAleese, MVP, Longevity, Europe at Pacific Life Re. “There is quite a limited pool of specialist people that can do this, and we’re all looking for the same people, and that’s a real impediment to growth.”
The people challenge to which Mr McAleese refers has been exacerbated by the Covid-19 pandemic and the unforeseen consequences of working from home.
During the lockdowns imposed to combat the spread of Covid-19, the lines between home and work became blurred for people in many industries, as the traditional commute – which previously offered some level of segregation of work time and non-work time – was eliminated, a consequence being that the PRT market was already losing people even before the dramatic increase in activity that the market has seen recently.
“You can work on even more deals when you’re not spending three hours commuting,” said Pretty Sagoo, Managing Director of Defined Benefit Solutions and Member of the Group Executive Committee at Just Group.
“But the result was devastating for a lot of young people who just barely got out of their bedrooms sometimes. Covid led to an exodus of pricing actuaries just as a result of them never seeing the light of day.”
The industry has begun attempts to address the people resource challenge. Mr McAleese and Ms Sagoo were part of an initiative that gathered market participants together to discuss some of the mental health challenges in the space back in 2021.
“It started with a roundtable of senior leaders from across the market – lawyers, consultants, reinsurers, insurers – talking about people and wellbeing, including the question about burnout and how could we address that. It was a positive discussion, highlighting the importance of sharing our challenges, such as the difficulties in saying no to clients or handling tight deadlines and late nights. We expanded that to a PRT and Talk event so that broader range of people could share their experiences and ideas about working in the market,” said Mr McAleese.
Initiatives like PRT and Talk are welcome developments for many in the industry, but it’s not a silver bullet, unfortunately. Implementing a better support system and work environment benefits only those who are currently in it, and the numbers shortage remains. Investment banking has long recruited people with different skill sets and educational backgrounds, and now, the PRT market is also looking further afield to address the numbers gap.
“I’m a non-actuary, but I can do maths,” said Ms Sagoo. “I spent ten years on a longevity desk at a bank and we did billions in transactions with only one actuary out of a team of 15 people. Our market has overlooked people because of strict job requirements that, looking back, might not have been necessary. We’ve put ourselves into a box, but we need to get off the hamster wheel of always doing the same thing recruitment-wise because I think that different skill sets can give a competitive advantage in the long term.”
The expansion of the net the PRT market throws to catch new talent should go some way to alleviate the challenge, but it takes time to train new recruits, particularly those that have recently graduated from university. But other industries are competing for that talent as well, and so Ms Sagoo says that the ‘new normal’ – not so new anymore, perhaps – of ‘hybrid’ working is something where, for firms that are willing to implement more flexible working arrangements, it can be a competitive advantage.
“I’ve lost talent because they didn’t want to come in three days a week. And I’ve lost talent because they didn’t want to come in ever. But I’ve never lost anyone because they wanted to come in five days a week – so that can’t be the only option!” she said. “We have to keep an open mind about this so that we maximise the size of the available talent pool.”
The current healthy nature of the funding position of defined benefit pension funds means that scheme trustees will be knocking on the door of consultants for years, as even in the event of a reduction in interest rates, those that implement effective hedging strategies should be able to maintain their fully funded status. The steps the industry is currently taking to address the talent shortfall would arguably reap rewards, but until these initiatives begin to bear fruit, in the short term, it’s about managing what you’ve got.
“The challenge that we’ve got now is not just the extent to which the lack of people might impact the growth of the market, it’s the risk that the short-term opportunity that exists now starts to burn people out. There could be the temptations to repeat the cycle of late night after late night, quote after quote, because of the situation now,” said Mr McAleese. “It’s about asking ourselves: ‘How can we start to think differently, and protect our people,’ because the PRT market is a long-term market and we need this to be sustainable.”