Growth in the purchase of bulk purchase annuity (BPA) contracts by small defined benefit (DB) pension schemes over the past couple of years has been accompanied by the emergence of templated transfer processes that speed the closure of deals, enabling insurers to execute more of them.
In offerings that have been likened to ‘off-the-shelf’ products, a handful of insurers have created standardised pricing models and procedures that streamline the risk offset process for schemes with assets of £150m or less.
Templated procedures lower the cost of transaction for insurers and bring liquidity to a part of the market that has often been perceived as incapable of negotiating a good deal on bulk annuities.
Meanwhile, shorter completion times free resources and increase the capacity for insurers to pursue more deals without the need to commit more capital. They also enable sponsors to remove schemes from their books quicker.
Four insurers are offering templated services. Legal and General’s Flow has been formulated to handle the transitions of schemes of £150m and less. Just Group’s Beacon solution, Aviva’s Clarity and Pension Insurance Corporation’s Mosaic are offered to schemes of around £100m and less.
Each offers a largely pre-formatted, streamlined buy-in solution within a lighter governance contract that nevertheless retains the scheme’s benefit structures and customer experiences. They also feature faster quotation times, and some have begun providing support for progress to the buy-out phase. They differ from bespoke deals, where terms and pricing are negotiated over months as part of an expensive bidding and quotation process that usually involves several competing buyers.
“These solutions have been developed more about how insurers can offer a process that enables them to be efficient in the use of their resources, so that they can provide more schemes with this solution,” said Adam Davis, Managing Director of K3 Advisory, which has brokered deals at the smaller end of the market.
Schemes of £100m or less account for an estimated 75% of all the UK’s 5,000 DB pensions, according to the PPF’s Purple Book. De-risking demand from them has been resilient, with professional services consultancy Barnet Waddingham reporting that data from insurers showed that the first six months of 2024 saw an increase in the number of transactions involving such schemes.
They accounted for 80% of all completed deals and were, in large part, responsible for the record number of completions of all sizes in the period.
Debunking notions that the smaller end of the marker is struggling to find deals, DLA Piper found that success rates among eight consultants surveyed in 2023 had been strong, especially in the sub-£25m space.
“All consultants operating in the small schemes space have seen successful transaction rates for small schemes alongside good value for money,” the survey report’s authors wrote, adding that it was unsure where the negative perceptions originated.
Templated approaches are not suitable for all schemes. Large ones are unlikely to transact in this way because their benefit structures are often too complex to cover in a pre-formatted contract. From the BPA purchaser’s viewpoint, larger schemes carry greater governance risk too, which they would be uncomfortable incorporating into lighter contracts.
They may also need to think more carefully about their capital requirements when bidding for larger deals and examine the impact of high-value transfers on their investment portfolios and strategies.
“When you get to those bigger sizes, it’s hard to get away from the need to be a bit more bespoke in the way that you broke the solution and broke the insurance,” Davis said.
Trustees and sponsors of smaller schemes may also have reservations about templates because, in a small market, it would be difficult to find an insurer that shares the scheme’s investment principles – a particular consideration for those with a strong ESG preference.
Nevertheless, Davis believes that as insurers get more comfortable with the templated approach, the size of schemes they will be willing to accommodate will increase, with deals potentially climbing into the £250m-plus bracket. And the ESG question has, in practice, been moot because insurers already have a good track record of ‘trying to do the right thing’.
“We are certainly not seeing any cases where, when an analysis has been done of what insurers are doing from an ESG perspective, anything has thrown up a red flag that would stop the scheme thinking it doesn’t want to transact with that insurer,” Davis said.
The market for templated deals is likely to expand further. In its 2025 de-risking report, consulting firm WTW noted that several new entrants, including some that have focussed solely on large deals, are poised to enter the fray.
And Davis said he knows of a handful that are looking seriously at such a prospect. More advisers are also entering the space; independent consultancy Dean Wetton Advisory announced in January that it would offer pension risk offset and bulk annuity advice to schemes of all sizes.
Further, the templates can be expected to evolve and already Davis said he is seeing some that are capturing post-transaction tasks that will bring down the time scales from buy-in to buy-out. Because long intervals erode sponsors’ savings on the upfront insurance premium after a transfer, the speed to buy-out has become a more important factor than deal price to some schemes, according to PwC.
Davis hopes, too, to see standardisation between the templates. Despite their deep similarities, each is sufficiently different to place additional administrative burdens on deal administrators. Agreement among providers to eliminate those differences would bring huge resource benefits to both sides of a transaction.
“These solutions are going to continue to develop, and some of the new entrants will adopt them in their own way as well,” Davis said.
“The key bit is, that as we’re getting more and more insurers and getting more and more different templates, I’m just not sure it’s the absolute perfect solution. If we could just get the insurers to band together a little bit just in terms of agreeing an industry standard, I think that would be a game changer.”
