How can trustees optimise opportunities in the annuities market?

Navigating the settlement market to find a solution that best meets an investor’s needs is a challenge that continues to plague the market

Hardeep  Tawakley
clock • 1 min read

Aon Hewitt's Guide to Risk Settlement looks at how trustees and corporates can navigate the settlement market to find a solution that best meets their needs.

It is no surprise that the transfer of risk to an insurer is regularly appearing at the top of trustee and corporate agendas - especially given the buoyant settlement markets offering  pension schemes a terrific chance to de-risk.

Aon Hewitt's Guide to Risk Settlement looks to offer ideas on how pension stakeholders can capitalise on these opportunities and be in the best position to achieve optimum value when settling risk.

In chapter one, Aon  explains the basics behind bulk annuities, detailing how best to assess the price of a bulk annuity and how safe they are.

For example, investing in bulk annuities will typically increase security for the benefits covered under a policy. Insurers are subjected to a strict regulatory regime - they need to regularly demonstrate financial strength and resilience in order to be authorised. Insurers are required to hold additional capital reserves to reflect uncertainty, plus an additional buffer to cover extreme experience (defined as a '1 in 200 years' event). The Financial Services Compensation Scheme provides further support to the insurance regime.

For larger schemes, the availability of surrender terms or ring-fenced, collateralised policies can add even further security.

However, entering into a significant transaction with a third party should never be taken lightly, with due diligence essential, but trustees can take particular comfort from the dual support of the insurance regime and sponsor during a buy-in.

For more information, including what trustees should do and how they can optimise opportunities in the annuities market, please click here

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