• Home
  • Admin/Tech
  • Benefits
  • Buzz
  • DB
  • DC
  • Diversity
  • Investment
  • Law & regulation
  • Risk reduction
  • Events
  • Whitepapers
  • Spotlights
  • Digital Edition
  • PPTV
  • Newsletters
  • Sign in
  •  
      • Newsletters
      • Account details
      • Contact support
      • Sign out
     
    •  

      You are currently accessing ProfessionalPensions via your Enterprise account.

      If you already have an account please use the link below to sign in.

      If you have any problems with your access or would like to request an individual access account please contact our customer service team.

      Phone: +44 (0) 1858 438800

      Email: [email protected]

      • Sign in
  • Follow us
    • Twitter
    • LinkedIn
    • Newsletters
    • YouTube
  • Register
  • Subscribe
  • Events
    • Upcoming events
      event logo
      Webinar: How have DC investment strategies weathered the pandemic?

      This webinar will look at DC investment strategy – how well it has delivered through the pandemic, how volatile it has been and whether there are areas that have been shown to be wanting.

      • Date: 14 Apr 2021
      • Webinar
      event logo
      Webinar: Fiduciary management and transaction costs

      In this webinar, we will explore the concept of transaction costs through a fiduciary lens – looking at why best execution is critical to managing transaction costs; asking if having the right infrastructure and governance structures are pre-requisites to successfully managing transaction costs; and assessing the link between transaction costs and returns.

      • Date: 15 Apr 2021
      • Webinar
      event logo
      Defined Contribution Conference

      Professional Pensions Defined Contribution virtual event, hopes to take stock of the last year, and ask the important questions; are members saving enough and have we improved the member journey at retirement? This two part digital event will provide you with the latest thinking and innovation in the DC market during our snappy 15 minute presentations, with plenty of time to ask questions during our live speaker Q&A.

      • Date: 20 Apr 2021
      • Digital Conference
      event logo
      Webinar: PP Talks - Fiduciary Management

      This PP Talks webinar will ask how fiduciary managers coped with the Covid-19 challenge, how fiduciary management clients generally fared, and the outlook for the year ahead.

      • Date: 05 May 2021
      • Webinar
      View all events
      Follow our Professional Pension Events

      Sign up to receive email alerts about our events

      Sign up

  • Whitepapers
    • How DC schemes can gain exposure to different asset classes in a low-return environment

      So far, DC plans have largely been focused on the onset of auto-enrolment and changes to the regulatory framework - be it the ‘charge cap,' ‘pension freedoms' or consultations around ‘value for money', says Annabel Tonry, Executive Director at J.P. Morgan Asset Management (JPMAM).

      Download
      Pension freedoms three years on

      In 2015 George Osborne, then the UK Chancellor of the Exchequer, decided that those age over 55 could take much more of their pension in cash. This has since opened up a range of possibilities for DC scheme members in the world of pensions.

      Download
      Find whitepapers
      Search by title or subject area
      View all whitepapers
  • Spotlights
  • Digital Edition
Professional Pensions
Professional Pensions
Sponsored by T. Rowe Price
  • Home
  • Admin/Tech
  • Benefits
  • Buzz
  • DB
  • DC
  • Diversity
  • Investment
  • Law & regulation
  • Risk reduction
 
    • Newsletters
    • Account details
    • Contact support
    • Sign out
 
  •  

    You are currently accessing ProfessionalPensions via your Enterprise account.

    If you already have an account please use the link below to sign in.

    If you have any problems with your access or would like to request an individual access account please contact our customer service team.

    Phone: +44 (0) 1858 438800

    Email: [email protected]

    • Sign in
 
  • Risk Reduction

The evolution of opportunity

  • Ashu Bhargava
  • 03 July 2017
  • Tweet  
  • Facebook  
  • LinkedIn  
  • Send to  
0 Comments

2017 marks Legal & General's 30th year in the bulk annuity market. In this article Ashu Bhargava discusses how pricing has evolved in that time, ultimately giving pension scheme trustees greater opportunities than ever to de-risk.

The word 'opportunity' has maritime origins, referring to sailors navigating ob portus - in the direction of the port - while harnessing the best combination of wind, current and tide. This seems an appropriate analogy for pension scheme trustees navigating the de-risking landscape; often ultimately targeting the safe harbour of a buy-in and buyout provider.

Much has changed since Legal & General entered the bulk annuity market in 1987. The past decade has seen market volumes swell to unprecedented levels and there are now more options for pension schemes to take risk off the table than ever before. Gone are the days of one size fits all solutions: advisers have developed advanced tools for trustees and insurers now deliver highly bespoke solutions and pricing intended to help pension schemes make it to dry land.

So what are these developments and why do they matter to your journey?

Bulk annuity pricing has become far more dynamic in recent years, as investment strategy, reinsurance and market monitoring play an increasingly important role. For this reason, we frequently emphasise the importance of early engagement. In our experience we have found that trustees who engage with advisers and insurance companies at an early stage often achieve their de-risking objectives ahead of schedule.

New investment opportunities

Insurers are what are termed buy to hold investors. As we hold long term commitments to our policyholders, we are looking for investments that match the pension obligations we will pay out in the future. The advantage of this is that we don't see asset illiquidity in a negative light like other investors might.

With this in mind, in recent years we - like others insurers - have increased our interest in 'slow money' assets, such as infrastructure, housing and urban regeneration. These low risk assets pay an additional return because they are illiquid: an extra return which can be used to drive down the premium trustees pay.

Each asset opportunity is as unique as the last though: so the task of matching the right asset with the right pension scheme becomes key. Without an insurer having a granular understanding of your scheme's expected cashflow profile, ideal opportunities may be missed. When an insurer is confident that sourcing a particular real asset will lead to a transaction, we will often go the extra mile to find that real asset. 

Reinsurance

Reinsurance can also help to increase affordability for trustees and sponsoring companies, because reinsurers are often natural holders of longevity risk. There is significant competition and appetite amongst global reinsurers to assume longevity risk to balance their significant holdings of mortality risk. This can sometimes create opportunities for pension schemes with member profiles that reinsurers may find particularly attractive at a specific time.

Market monitoring

Buy-in and buyout pricing is also driven by financial market conditions, principally credit yields and inflation. As markets move, so too will the buy-in or buyout quote you receive. Therefore transacting with the right insurer on the right date can be far more beneficial than transacting with the best priced insurer on a set date.

This means that regularly monitoring your scheme's funding position and keeping a close eye on market conditions can help trustees to capture opportunities when they arise. ICI's £750m bulk annuity with Legal & General last year is an excellent example of this principle as the trustees were able to take advantage of favourable market movements following the EU referendum, which significantly narrowed the gap between the funding basis and the bulk annuity premium.

This serves to underline how the de-risking market has become far more nimble and innovative in recent years. Early engagement and strong collaboration can create opportunities for trustees and their sponsors that wouldn't have otherwise been there. As American author, H. Jackson Brown Jr. once put it:

"Opportunity dances with those already on the dance floor."

  • Tweet  
  • Facebook  
  • LinkedIn  
  • Send to  
  • Topics
  • Risk Reduction
  • Bulk Annuities
  • Industry Voice
  • legal and general
  • Bulk annuities
blog comments powered by Disqus
Back to Top
Trustpilot

 

  • Contact Us
  • Marketing solutions
  • About Incisive Media
  • Terms and conditions
  • Policies
  • Careers
  • Twitter
  • LinkedIn
  • Newsletters
  • YouTube

© Incisive Business Media (IP) Limited, Published by Incisive Business Media Limited, New London House, 172 Drury Lane, London WC2B 5QR, registered in England and Wales with company registration numbers 09177174 & 09178013

Digital publisher of the year
Digital publisher of the year 2010, 2013, 2016 & 2017
Loading