Ensure pension risk transfer decisions drive your scheme forward

Setting your scheme's long-term strategy is complex and the array of potential solutions bewildering. Mercer understands you only want the best outcome for your scheme's stakeholders, so we help you weigh up the options, manage the risks and make the right decisions to help you achieve your goals.
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Pension risk transfer - the new normal

Every year billions of UK pounds of defined benefit liabilities are transferred to insurers in the form of buy ins and buyouts or hedged using longevity swaps. With the overall upward trend in annual deal volumes expected to continue, insurers are working with advisers to create new and innovative solutions to suit individual scheme needs. This is the new normal of pension risk transfer and reflects high demand among maturing DB schemes to transfer pension risk.

In addition, more DB schemes than ever before are looking at providing their members with greater flexibility in how they access their benefits through member option exercises. With expert guidance, trustees and sponsors can take advantage of the plethora of risk transfer solutions and seize the opportunities that will accelerate their journey to their endgame.

We can help you move forward.

How we have helped our clients

The Mercer Risk Transfer team recently advised the trustees of the Thales UK Pension Scheme on the £2.7bn insurance transaction with Rothsay Life.

The transaction, which covers the liabilities of around 10,500 pensioners and almost 6,000 deferred members, required a number of interesting features to be worked through including:

• A single premium transaction providing residual risk cover from the point of buy-in, secured after an intensive due diligence exercise

• A variety of innovative solutions for transferring the illiquid assets which the Scheme held

• Innovation in the approach to benefits and data validation to ensure all objectives were met

• Ensuring member experience is maintained following the buy-in.

“It has been a privilege for the Mercer team to support the Trustees through this transaction. In a very busy insurer market the effort put in by all parties over recent weeks to make this transaction happen has been phenomenal. This demonstrates again that large, complex transactions can complete successfully with clear objectives for all parties to work towards.”

Ben Stone, Risk Transfer Partner at Mercer

Over the last three years, Mercer has advised on...

£2.2bn

the largest bulk annuity transaction in 2021

£4.3bn

across two deals, the largest bulk annuity transaction in 2022

£2.7bn

one of the largest bulk annuity transactions in 2023

Investment considerations for risk transfer transactions

Investments are critical to the success of any bulk annuity transaction. Understanding what insurers want and positioning your investments accordingly can help reduce risk and optimise outcomes.
Find out more

The Mercer Streamlined Quotation Service – helping smaller schemes access bulk annuity pricing

Are you looking to complete a deal of £100 million or less and concerned that you will struggle to attract the attention of insurers? We have developed a unique solution that could help you get more quotes more frequently from more insurers.
Our pension risk transfer team can help trustees and sponsors of defined benefit schemes identify the most effective way to manage, reduce or remove risk.
Andrew Ward

Leader Risk Transfer and DB Journey Planning

What are your pension risk transfer options?

There is no ‘one size fits all’ approach to pension risk transfer.  Each DB scheme has its own set of circumstances and strategic objectives.

Our first step will be to work with you and all relevant stakeholders to understand your DB scheme's strategic objectives. We will then work in partnership to identify the pension risk transfer solutions that are right for you and your members.

There are several solutions available for schemes in the process of assessing their DB pension risk transfer options. Mercer believes all DB pension schemes should be considering which risk transfer activities fit within their long-term strategy, along with how and when to deploy them.

A pension buy in involves the trustees purchasing a bulk annuity policy to cover some or all of their scheme's DB liabilities. Total market volumes of bulk annuity transactions have seen a step change in recent years to around £30 billion per annum. A wide range of factors, such as maturing schemes, sponsor contributions and financial market movements mean that many schemes are closer than they think to affording a buy in. Mercer has a strong track record for completing deals for its clients and advised on around a quarter of all transactions in the bulk annuity market over 2020 and 2021.

Smaller schemes can struggle to get quotations in a busy bulk annuity marketplace. Our Mercer Streamlined Quotation Service can help – it has helped Mercer advise over 20 sub-£50 million buy ins and lead on almost 30% of all sub-£100 million buy ins in 2021.

A pension buyout involves converting a buy in policy to a series of individual policies between the bulk annuity insurer and individual members. This allows trustees to discharge DB scheme liabilities. Mercer has taken hundreds of schemes through this process and has strong project management capabilities to support trustees and sponsors through pension buyout and wind-up.

There are a range of longevity hedging solutions that have been developed for pension schemes and Mercer is the only adviser with experience of implementing each of these, including deals of over £1 billion and deferred-heavy deals. Our expertise includes developing a unique small scheme offering, which has led to Mercer advising on seven out of eight of all sub-£500 million deals to end-2021.

Mercer has been involved with driving several hundred member options projects across a team of actuaries and communications specialists. They have deployed behavioural science techniques to improve member engagement. Mercer has also developed a unique artificial intelligence (AI) tool, which utilises the information from the thousands of member choices made in member options projects each year to determine the likelihood of each member accepting an offer in relation to their benefit.

A Government white paper opened the door to DB pension scheme consolidation, with two commercial consolidators emerging to date; Clara Pensions – assessed by the Pensions Regulator – and The Pensions Superfund, which is in assessment.

In a challenging economic environment, we would expect the more distressed employers to find this an attractive option. However, commercial consolidators, and indeed buy in and buyout providers, are just one end of the spectrum of consolidation options. Mercer has a team of consolidation experts covering risk transfer, covenant, DB master trust and investments who will help you work out what the right solution is for your scheme.

There are a growing number of other options available to trustees and sponsors who are looking to remove risk from their DB pension scheme.

Our team

55

dedicated consultants

20

strong team of analysts

25%

of all transactions over the last three years have been advised by Mercer

Market Overview

  • H1 2023 saw over £21bn of transactions completed, the highest volumes in the first six months of any year.
  • Q3 saw a continuation of high activity levels and, based on transactions currently in the market, Mercer predicts record-breaking year-end volumes.
  • M&G completed their first two transactions since re-entering the bulk annuity market via their subsidiary, Prudential Assurance Company (PAC). PAC was previously active in the market between 1997 and 2016 under the Prudential brand and, although it is likely to be selective in identifying suitable transactions, its re-entry provides a welcome increase to capacity.
  • The Chancellor’s Mansion House speech of 10 July 2023 launched a package of proposals for pensions and investments likely to impact schemes and insurers.
  • The PRA issued a consultation on proposed changes to the “Matching Adjustment” rules. These proposals widen the universe of eligible assets that insurer can invest in, but could lead to increased reserving requirements.
  • Pricing remains competitive, but with insurers forced to be selective, all schemes considering risk transfer need to be flexible, well-prepared and focused on key objectives.
    • Small schemes (<£100m) should be prepared to consider choosing an insurer on an exclusive basis from the outset, and consider how to identify the most appropriate partner. 
    • Medium-sized schemes should consider how to standardise and streamline the broking process to best effect. 
    • Large schemes will have unique issues to address and will be able to utilise the greater scope for tailoring transactions if they adhere to the principles of defining clear objectives and timescales.
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Get in touch to discuss which pension risk transfer options might help achieve your scheme's strategic objectives.