As the risk reduction market gets busier and busier, Jonathan Stapleton says preparations must become more comprehensive for schemes to gain a foothold.
You wait ages for a bus and then two come along at once… Or, in the case of large risk transfer deals, four come along at once.
Four of the five largest ever buy-ins and buyouts have been unveiled over the past four months - with Rolls-Royce's £4.6bn pensioner buyout with Legal & General in June being closely followed by British American Tobacco's £3.4bn buy-in with Pension Insurance Corporation in August, and two deals with Rothesay Life - a £4.7bn buy-in to buyout deal with the GEC 1972 plan and a £3.8bn buy-in with the Allied Domecq Pension Fund - in the past week.
While it may be too soon to call a trend despite the flurry of recent activity - these transactions tend to be quite lumpy in nature - the risk reduction market has already had a record year with a total of £31bn of deals now confirmed as having being transacted so far.
As James Phillips notes in his in this week's edition of Professional Pensions, consultant expectations are that the volume of deals could top £40bn this year.
There are a number of factors driving the growth in this market. First, affordability for some schemes has improved - driven by asset performance, increased contributions into pension funds, and changes to longevity assumptions. Schemes have also been increasingly completing liability management exercises, which have also helped improve funding levels.
Insurer pricing is also increasingly competitive - driven by both insurer innovation in structuring deals and their growing ability to source long-dated direct investments in areas such as social housing, student accommodation, lifetime mortgages, and infrastructure. Such assets can provide a good match to insurer liabilities, often allowing them to provide better pricing to clients.
But could we come reaching a point where demand exceeds supply?
In any area of life, sellers will always tell you ‘buy now while stocks last' or ‘last few remaining' as a way to get you to buy today rather than in the future. I'm sure the salesman's pitch is as pervasive in pensions as anywhere else.
But it is also fair to say that insurers don't have a limitless amount of resource - and those schemes that are well prepared and clearly know what they want are bound to be prioritised as things get busier.
Jonathan Stapleton is editor of Professional Pensions
The number of defined benefit (DB) scheme members with benefits protected by an insurer will double by the middle of the decade, according to Lane Clark & Peacock (LCP).
Aviva Life & Pensions has concluded an £875m buy-in with its own staff pension scheme, following on from a similar transaction last year.
Just Group has completed a £74m pensioner buy-in with the UK pension scheme of a US-listed engineering business.
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.