Defined benefit (DB) pension schemes have been encouraged to consider adapting their approach to the insurance market due to the expected record £25bn of bulk annuity deals in the first half of 2023.

Hymans Robertson stated that, with this expected level being at an all-time high, schemes will need to embrace change in the way they approach the market.

It called for DB schemes to consider a more targeted approach, driven by scheme size.

“Busyness in the risk transfer market is at an all-time high, with around £25bn of bulk annuity transactions expected to be secured in the first half of 2023,” commented Hymans Robertson partner and risk transfer specialist, Lara Desay.

“To deal with this level of activity and to enable them to secure a successful transaction, the way in which pension schemes approach the market will have to adapt.”

She argued that, for schemes with less than £100m in assets, approaching the market on an exclusive basis had now become a pre-requisite.

Desay said that setting an appropriate price target relied heavily on having an all-encompassing view of market activity to understand where current market pricing lies and what adjustments were needed to reflect a scheme’s profile.

“Having an adviser with a strong understanding of the current market and knowing who is pricing competitively at any given time is important,” she added.

Meanwhile, for schemes with between £100m and £1bn in assets, Desay said this segment of the market was likely to raise strong interest from a wide range of insurers, and therefore a two-round process may still be attractive at this size.

However, she warned that some insurers may prefer this to reduced to a single round to ‘cut to the chase’ and reduce burden on their pricing team.

“The market for large schemes is seeing its largest ever flow of transactions over £1bn in size, around 20 deals at this size have already transacted or, are being quoted on in the market this year,” Desay noted.

“This means securing insurer participation is no longer the given it once was. Key to getting strong participation is having an adviser that is able to demonstrate clarity and certainty over objectives and timescales.

“As with all things pensions related, there is rarely an ‘off the shelf’ solution. Each scheme will have its own nuances and some adjustments to processes may need to be adopted for transactions to be successful. But being willing and alert to making adjustments will be vital.”

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