David Stewart: Small DB schemes already make up the majority of bulk annuity deals by number
There will be over 300 buy-in transactions this year as streamlined services give smaller schemes access to more insurers, better pricing and improved terms, LCP says.
The consultancy said the number of buy-in deals had more than doubled over the past five years – with the growth driven "almost entirely" by sub-£100m transactions.
It said over 80% of all transactions in the first half of 2024 were under £100m.
LCP said the growth had been driven by streamlined buy-in services such as the one it launched in 2011. It said this development, along with several competing services that followed later, had been a "key factor" in the rapid growth in transaction numbers.
It said the core idea of these services was to offer a streamlined selection process with enhanced pre-negotiated contracts that give smaller schemes access to pricing and terms normally available only to larger schemes.
LCP said its service has now reached 100 transactions with £4.3bn transferred to insurers – noting that the size of the transactions range from £2m to £220m, with an average size of £43m. It said seven different bulk annuity insurers have completed transactions through the service.
From an insurer standpoint, LCP said the growth in the number of buy-in deals had been led to date by two insurers, Just and Aviva, which between them wrote over 60% of all buy-ins in 2024.
LCP said both of these insurers had developed their own streamlined processes to help deliver this growth which dovetails with adviser-led services.
More recently, it said Pension Insurance Corporation had also launched a streamlined process and new entrants have also been targeting smaller schemes – adding that the smaller end of the market has become "increasingly competitive".
Source: LCP
LCP warned smaller schemes to be careful when choosing the best route to market. It said, because the market is so busy, some schemes who are not using a streamlined buy-in service, have resorted to non-competitive sole insurer processes – something LCP said opens the potential for insurers to put forward "above market" pricing.
LCP partner David Stewart said: "I am delighted with the take-up by smaller schemes of our streamlined buy-in service, having now hit its 100th transaction with over £4bn transferred to insurers, and for having played its part in the rapid growth in the market."
He added: "Small defined benefit schemes already make up the majority of bulk annuity deals by number – with buy-in transactions under £100m making up over 70% of total buy-in transactions in 2022 and 2023, and over 80% in H1 2024.
"Insurers are happy quoting on a competitive basis through LCP's streamlined service given it is ‘tried and tested' with pre-agreed contracts. This results in better pricing and gives access to stronger legal terms that are normally only available to larger schemes."
