Despite a slow start back in 2021 due to the pandemic, the bulk annuity market has thrived over the last year - supply and demand have been buoyant as funding levels have increased, driven in part by asset outperformance and higher interest rates. Standard Life's Defined Benefit Solutions team has also reported their best year ever in the bulk annuity market and completed its largest transaction to date.
Phoenix Group acquired Standard Life's insurance business in 2018, and subsequently the brand identity in 2021. How has the rebranding supported the Defined Benefit Solutions team's growth?
Matt Richards: The re-branding has been received positively across the market and with our clients. We believe it will be a significant contributor to our continued success in the BPA sector.
Standard Life is a strong, well-known consumer-facing brand; it made sense for us to approach the market using a brand recognised by consumers.
However, we're keen to be seen in the market as ‘Standard Life, part of Phoenix Group', as we've built a strong reputation in the bulk purchase annuity (BPA) market as Phoenix. We still benefit from the size, strength, and resilience of Phoenix Group. We wrote £5.5bn of bulk annuity volumes in 2021, including two of our largest deals to date - a £1.8bn pensioner buy-in for the Imperial Tobacco Pension Fund and a £1.7 billion full scheme buy-in for the Gallaher Pension Scheme.
What's behind the growth in the bulk annuity market?
Matt Richards: The key drivers for scheme funding improvements over the last five or six years are slowing longevity improvements, effective hedging by schemes, and asset outperformance.
The competitive insurance landscape is also continuing to provide attractive levels of pricing, encouraging more schemes to come to market.
Schemes facing a better funding position will naturally turn their attention to the best way to lock in their position, and most will target insurance as the ultimate risk reduction tool.
The continued uncertainty of the pandemic is likely to be a key driver in the bulk annuity market's growth as a greater proportion of trustees and sponsors seek to de-risk and protect their members' benefits.
Will we see a healthy pipeline continue in 2022?
Matt Richards: As a result of improved scheme funding positions, we expect to see BPA market volumes averaging around £40bn per annum over the next four or five years. And there's potential for further growth beyond that as schemes mature. There's already significant interest in transactions for 2022 with a strong pipeline of cases where trustees are looking to transact.
As the pipeline grows and the market becomes busier, how can schemes continue to attract attention from insurers amid competition from other schemes?
Matt Richards: Schemes can engage the interest of insurers by having thorough planning processes in place, conducting regular sponsor engagement, and by having access to an experienced de-risking adviser.
Preparation is key too. Good data, a legally reviewed benefit specification, and pre-planned internal governance are the main factors that insurers focus on when deciding whether to quote.
Several smaller clients have already had success by engaging with an insurer on an exclusive basis. Pricing remains competitive and advisers can work with trustees to advise whether the pricing they have received offers good value.
Uncertainty remains around COVID-19's impact on longevity. Could this create headwinds for schemes, sponsors, and the market?
Matt Richards: Businesses and consumers alike are continuing to feel the economic impact of the pandemic. However, we expect the additional uncertainty trustees and sponsors are facing will be a key driver for trustees looking to de-risk and ultimately protect their scheme members' benefits.
This post was funded by Standard Life