Completing a bulk purchase annuity buy-in transaction remains an important step in the de-risking journey of a small-to-medium-sized pension scheme. Greg Winterton spoke to Yona Chesner, Head of Pensions Investment at Cartwright Pension Trusts, to get his take on the current state of the small to mid-market buy-in space in this month’s Q&A.
GW: Yona, for small-to-medium-sized pension schemes looking to secure a buy-in, data readiness, like GMP equalisation and missing member data remains a major roadblock. What practical strategies and/or timelines do you recommend to trustees to get their ducks in a row – while being cognisant of costs?
YC: I’d get the data moving before anything else, because it usually sets the timetable. I don’t see GMP equalisation as the roadblock people assume it is: the methodologies are settled, insurers will price and complete on an agreed basis and true-up afterwards, and what’s left is normally just more data to collect rather than anything complex. Missing member data is what actually holds schemes up, so pin down the benefit specification with your lawyers early. For a smaller scheme, be proportionate. In this case, spend where it changes the price or a member’s benefit, not on chasing every historic gap. Get that right and a well-prepared small scheme can move quickly.
GW: Once a scheme is data-ready, it’s not unusual to hit funding or asset roadblocks, such as holding illiquid assets that normally take years to run off. How can a scheme with unique funding backdrops keep an insurer engaged, and what compromises are sponsors having to make to get these deals over the line?
YC: Sort the investment strategy for the transaction first. Take the time to work out what can realistically be realised in your window and plan around what can’t. Illiquids need to be looked at early, because they run off over years while a transaction happens over months. There are a few ways through. You can time the deal around the run-off, transfer assets in specie if the insurer will take them, sell in the secondary market to release value early (usually at a haircut), or have the sponsor put something in to bridge the gap. In some situations, a deferred cover policy will work. A deferred policy allows Trustees to get the policy in place, while cover only starts after a couple of years. This can work if cashflows and timings from the illiquid assets is known with confidence, or there is a Sponsor who can step in if needed. Insurers are picking their battles, so the ones that hold their attention are the schemes that turn up organised and actually make decisions.
GW: Cartwright has previously highlighted the risk of ‘incumbent bias.’ When trustees choose to break away from their day-to-day advisers to test the market for a specialised risk-transfer consultant, what specific questions should they be asking?
YC: It may not be that the existing adviser is doing a bad job. At the smaller end, some just don’t do risk transfer often enough to have real expertise. But with the bigger names the issue is usually the opposite: they’ve done plenty of transactions, often more than anyone, but their attention and their economics sit with their largest clients, where the spend per scheme can be many times what a smaller scheme pays. So, a small to mid sized scheme can end up well down the priority list, run day-to-day by a junior team. Either way, they have an obvious interest in keeping the client, so testing the market is just sensible governance. I’d ask some direct questions. Who will actually run this day-to-day, and how senior are they? Where does a scheme our size sit among your clients, and how do you make sure we’re not deprioritised behind bigger clients? How do you get paid, and are there any insurer relationships I should know about? How will you keep insurers competing for a scheme our size when they can afford to be choosy? And how do you take us all the way to buyout and wind-up in a timely manner, not just the buy-in? A good adviser will also tell you when a buy-in isn’t the right move at all.
GW: Even if a specialised adviser is brought in, a buy-in might not be the automatic next step. Given your insights into the inner workings of insurers and the alternative of running on, how do you help trustees objectively weigh the security of an immediate bulk purchase annuity against the potential upside of running on, particularly given the recent regulatory developments that are designed to better support that option?
YC: There’s no one-size-fits-all answer here, it simply depends on the scheme. Run-on is a more genuine option than it was, and it will be more so again once the Pension Schemes Act changes and the new surplus rules land, expected in 2027. But it isn’t a free lunch. You’re committing to run the scheme for years, with all the governance, investment expertise and covenant reliance that involves, and the upside, though real, isn’t guaranteed. A buy-in gives you certainty instead. For a smaller scheme the running costs are more significant relative to the assets, so more often than not transacting sooner is the more defensible call. Whereas bigger schemes with scale and a strong covenant might take the other view. The adviser’s job is to set the trade-off out honestly and advise what is right on a case-by-case basis, not take a cookie-cutter approach.
GW: The insurer landscape is evolving rapidly, with global asset managers buying up established UK insurers. How is this influx of international capital affecting pricing competitiveness, and what new nuances should trustees look for when evaluating an insurer’s long-term capital backing and financial strength?
YC: It’s very real now. Athora bought PIC and Brookfield bought Just, both completing around April, and L&G has teamed up with Blackstone on sourcing assets. More money and more players are broadly good for price and capacity, but the trade-off is that too much consolidation could lead to fewer options over time. I would advise trustees not to stop at the premium. Look at who actually stands behind the policy and how they’re investing the balance sheet, how heavily they lean on funded reinsurance and private credit from the parent. And finally, consider how good the administration will be too. Your members will rely on this insurer for decades.
GW: Looking ahead over the next three to five years, as the bulk purchase annuity market continues to grow more crowded and complex, what do you see as the single biggest structural shift or challenge that UK trustees and corporate sponsors of smaller-mid-sized will face in navigating the endgame space?
YC: The real challenge isn’t getting to a buy-in, it’s everything after it – and that’s where the real measure of success lies. Volumes are heading for record levels. As such the challenge stops being ‘can I get a quote?’ and becomes whether the whole chain – insurers, administrators, advisers and lawyers – can deliver the work to a high standard and within the timescales needed. The real question is: can they take schemes all the way to buyout and wind-up, and do it well?
In my experience, the back half is where things stall. Things like data true-ups, sorting out benefits, reassigning old annuities across different insurers and the wind-up itself cause most issues. Here the smaller schemes can easily get left behind as focus is directed on the big deals – especially where teams are stretched. So, plan for a busy market. Being well prepared, well advised and well project-managed is what gets you to the front. And choose an adviser you are confident will treat you as a priority, not as a data point.
Yona Chesner is Head of Pensions Investment at Cartwright Pension Trusts
