Misconceptions about bulk annuities may be hindering schemes from being able to get good deals, according to speakers at the Pensions and Lifetime Savings Association (PLSA) conference.
The myth that defined benefit (DB) schemes must be fully funded to offload their liabilities to insurers is incorrect, according to Pensions Insurance Corporation origination actuary Uzma Nazir.
Speaking at the conference on 20 October, she said there are things schemes can do as and when they are affordable. For example, the Philips Pension Fund which was split into several tranches, might be advantageous for other schemes as they can get different pricing at different times.
Another myth is that schemes looking to do buy-ins in the future do not need to worry about data until later on. This was dispelled by Total UK Pensions Scheme group pensions manager Elizabeth Summers, whose scheme did a full data cleanse in 2010 before entering a pensioner buy-in with Pensions Insurance Corporation (PIC) in 2014.
She said "good data is key and can have a fundamental impact on your pricing so it is important to get data right from the start". Also, schemes should raise any issues early on as it makes the project run more smoothly.
There is a belief that trustees can do the legwork on their own, but Summers said from her experience, collaboration with all parties is important.
"Overall it was a very collaborative approach and that was key to the project's success. You're more likely to get deal over the line if you have buy in from all interested parties."
For example, the Total scheme established a working group made up of representatives from the company and trustee. Also, the buy-in discussions went right to the very top of the Total Group in Paris.
"Insurer appetite can vary, depending on what deals they've done and ones they're working on," said Summers. "We really wanted the insurers to see we were well prepared and we were keen to take this seriously and keen to transact, as that would ensure we got a good quote.
"Insurers are picky; they don't want to take their time if you're not serious. So showing your data is in a good state, and that you have the involvement of your superiors will make them keen to give you a good deal."
Another myth is that once the buy-in is completed, it is a job done.
However, this was not the case for Total after the intense ten months from start to completion of its buy-in. Summers said after the buy-in was completed, "data issues came out of the woodwork" and the scheme had to have "daily talks with PIC to resolve these issues".
She also revealed the scheme is looking to do another buy-in for pensioners that have accrued since the last deal.
The Smiths Industries Pension Scheme has secured a £146m buy-in with Canada Life in its fourth bulk annuity and its sponsor’s tenth overall.
The Prudential Staff Pension Scheme has entered into a £3.7bn longevity swap with Pacific Life Re, insuring the longevity risk of over 20,000 pensioners.
The Baker Hughes (UK) Pension Plan has secured approximately £100m of liabilities through a buy-in with Just Group.
There have now been a total of 30 longevity swaps over £1bn publicly announced. The full list, provided by Willis Towers Watson and through PP research, is as follows...
The Reckitt Benckiser Pension Fund has secured a £415m buy-in with Scottish Widows, insuring the benefits of around half of pensioners.