The UK pension risk settlement market is “functioning well” for smaller schemes, despite previous concerns that they could get crowded out by an increasing number of ‘mega deals’, Aon has stated.

Aon said that the pension risk settlement market was showing no signs of slowing down, arguing that smaller schemes need to make the right preparations to get the best attention for their proposed transactions.

It has also observed some ‘distinct trends’ emerging, such as insurers streamlining their broking processes to make it easier for them to quote on more deals for smaller schemes, but each insurer proposition was different.

Furthermore, more insurers were found to be quoting for smaller transactions and were increasingly engaging with a wider range of schemes on an exclusive basis.

Amid strong flows of bulk annuity deals, Aon highlighted ways in which smaller schemes should and should not be preparing for transactions with insurers.

In particular, the consultancy urged smaller schemes to ensure all stakeholders were aligned, that they had a clear strategy for post-transaction as well as during the transaction, to be flexible, and to make sure the scheme and advisers were aware of all the solutions available.

It also told smaller schemes to not be afraid to ask for bespoke processes, to not worry about complexity, and to not ‘spring surprises’ on insurers.

“The pension scheme risk settlement market is buoyant and, although there is some noise about small schemes being crowded out of the market by all the mega deals, this is not what we are seeing in practice,” commented Aon associate partner in risk settlement, Joe Hathaway.

“In fact, there are increasingly more options and resources available for schemes that are under £150m in size. This expansion in capacity across the industry is welcome as it is really needed to support the increasing level of demand across the full range of scheme sizes.

“Most significantly, the market is especially active for schemes that have prepared correctly and which have been taken to market in the right way. As schemes navigate new forms of volatility, we find there are always subtle changes to the market year-on-year and 2024 appears to be no exception. We have seen some distinct trends emerging.”

---