BW's Rosie Fantom says buyout may not always be the holy grail
Holly Roach chats with Barnett Waddingham risk transfer partner and head of bulk annuities Rosie Fantom about her 2024 predictions for the market, and why buyout may not always be the holy grail.
Barnett Waddingham predicted a £50bn market in 2023 in terms of bulk annuity volumes, which Fantom reckons was an "about right" prediction. Volumes will be "of that magnitude", she says, predicting further growth after around 200 deals were completed in 2022, and 2023 saw an expected 230 to 240 deals take place.
Fantom also says the membership of those included in deals has altered in recent years. Looking back three or four years ago, "a lot of business was mixed with pensioner and deferred members, whereas now there is an increasing proportion of full scheme transactions - this changes the nature, as more schemes will aim to hold the bulk annuity insurance contract for a short period before moving to individual policies".
Not dissimilar to what others among the industry are saying, Fantom confirms the market is "incredibly busy and growing".
While volumes for H2 2023 are yet to be confirmed, we know last year did see some of the largest ever bulk annuity transactions including the £4.8bn buy-in deal between Boots and Legal & General and the £4bn buy-in the Co-operative Pension Scheme bagged with Rothesay.
"We can attest to very much a busy market to exceed last year's arguably record-breaking volumes," Fantom says.
This year, Fantom is anticipating the bulk annuity market to reach around £50bn again, which she believes is "consistent" with other recent article quotations suggesting a total pension risk transfer market of £80bn - with £50bn of bulk annuities. "The potential growth beyond that remains."
Alternative solutions
Outside the insurance space, there are several merging options available, including the likes of pension superfunds.
In November, Clara Pensions completed the first UK superfund deal with the Sears Retail Pension Scheme and Barnett Waddingham's most recent risk transfer report suggested the industry will be "watching eagerly" to see if more of these transactions succeed.
The firm said there are "merits in having non-insurance solutions offering risk transfer solutions where the mainstream routes are not viable". Barnett Waddingham is also eager to see "whether the market for other forms of capital-backed risk transfer will take off".
Capital-backed journey plan structures operate within existing scheme trusts, unlike superfunds, and are usually investment products meaning fewer regulatory barriers are in the way for completing a transaction.
Fantom says she sees superfunds "as an option", with alternative solutions "playing a role" but circumstances remaining "less mainstream".
Member-first perspective
Fantom says she is "detecting a slight change in the mood music" around member experience and communications, suggesting there will be heightened effort on ensuring a "member-first perspective" when it comes to risk reduction transactions.
Citing the ongoing Post Office scandal, Fantom says there has been a "change in perception and expectations in the sense that members are more aware that things might not be as secure or simple as what they were expecting and there are things they can do to get a voice".
"I think that then creates a certain backdrop from trustees and sponsors looking to make changes to schemes - it ups the bar for how schemes should interact with members."
In the transaction world, she says there are "key components" to ensuring successful transactions such as making sure data is good and the benefits being secured are correct.
"How we approach in the preparation is crucial. Transactions are only one way, so if you get it wrong you can't come back out and try again.
"This really focusses the mind on getting it right and having robust information including details on the data, and the stakeholders involved, to ensure you are in a position to make the biggest decision a trustee board might face - certainly in recent years."
Member communications and the governance side of things will be given "heightened focus" in 2024, Fantom predicts.
She says firms are increasingly looking at how things are explained to members, including arming them with information on how their benefits are secure and making that information accessible. She says it is crucial to "give this the focus and attention it deserves and really make sure we do a decent job - this is not always a priority for some".
Buyout not necessarily the ‘holy grail'
She says while buyout is often seen as the "holy grail" and the "gold-plated solution to achieve at the earliest opportunity", it is crucial firms fully think through whether transacting is the correct thing to do at the present time.
"The majority of schemes will conclude it is the thing they should do but need to ask the question and get advice that considers all different strands."
Different strands she highlights include affordability. "Price is King", she says, noting affordability is a "must have" but the transaction "also needs to actually provide the right benefits and needs to work for members".
"The market is always changing, there are all sorts of strands involved and the more you dive into it, you see there are a lot of devils in the detail. Preparation is paramount - get the data, information, and stakeholders in place," she urges.
Obligation to members
Last year, Fantom confirms Barnett Waddingham led transactions for around 15% of the market in the first half of 2023 (H2 data not yet available), noting the firm is "very active in the space". Deals announced in 2023 that the consultancy had involvement with included a £1bn buy-in between the Chubb schemes and Standard Life, a £25m buy-in transaction between the Westminster Abbey scheme and Pension Insurance Corporation, and an £850m buy-in between Arcadia Group and Aviva.
Fantom says overall, firms should ensure client or insurer time is not wasted, they focus on prioritising preparations, and ensure clients have the right information to execute transactions successfully.
At the end of the day firms have an "obligation to remember it's not your pension scheme, it's your members' money".
