UK - Prudential has launched a "new generation of flexible bulk annuity products" for schemes in wind-up.
The insurance giant said traditional bulk annuities were inflexible because they required schemes to pay the full premium up front. But its new products – the Structured Buy-Out Plan and the Refundable Buy-Out Plan – enable schemes to buy differing levels of protection and spread the premium over a predefined term.
Under the Structured Buy-Out Plan, schemes can spread the premium over a predefined term, which Prudential says removes both longevity and investment risks. In return, the insurer will pay an agreed set of benefits.
Under the Refundable Buy-Out Plan, schemes will pay an initial premium – followed by annual management charges. In return, they will receive money back from Prudential, depending on its performance.
Scheme assets will be held in separate, ringfenced accounts, and should there be any investment outperformance or events that result in lower liabilities, Prudential will refund the cash to the trustees, who can then use the cash as they wish.
The accounts will be reviewed on an annual basis and if there is any deficit, the product reverts to an ordinary bulk annuity product.
Prudential says the Refundable Buy-Out Plan is suitable for schemes worth £400m or more.
Prudential director of risk management for pension schemes Ted Clack said: “The traditional bulk annuity has been used by a number of schemes, but it may not have been considered suitable by all trustees due to both the lack of availability and affordability to the scheme.
“Our unique suite of products have been designed to provide a flexible and innovative approach for trustees looking to manage both longevity and investment risks.”
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