As more and more pension schemes transition to a de-risking strategy, our recent Bulk Annuities webinar hosted by Heywood’s Spence Lynch focused on how pension schemes can get started and begin their buy-in buy-out journey.
We discussed the best routes to engage with insurers, preparation of data, and how technology can be used to expedite what can often be a prolonged process.
Current market conditions and a period of prolonged high activity is being primarily driven by the recent movement in gilt yields. According to Rod Brown, CRM Leader at Heywood “current market conditions have made pricing more attainable to pension schemes." These favourable conditions also open the door to a shortened journey time to buy-out.
The de-risking market shows no sign of slowing down. Richard Seymour, Senior Transition Manager at Pension Insurance Corporation said “Looking at projections, the next two to three years are going to be very busy. It’s much more affordable now to secure a product. There are however resource constraints across the whole industry.”
These constraints Richard alludes to could have a knock-on effect in a schemes ability to secure a deal with an Insurer, but there are actions schemes could be doing now to prepare for de-risking.
Richard added “The bigger schemes get more interest from insurance companies because of their size, but smaller schemes are very attractive too. In their case it’s important to demonstrate a good request for proposal (RFP) process along with a commitment to transact.”
When competing for Insurer attention, being able to demonstrate that they are ready to transact will go a long way. For pension administrators this means data, says Rod. “It’s all about data and being able to demonstrate that you’ve not only made an effort to get your data in order, but that you’re keeping it in order.” To make themselves more appealing to insurers, and to stand out in the crowd, administrators should have mechanisms in place to maintain the integrity of data.
Where do Insurers stand on schemes data and calculation, and does it need to be a certain standard?
Richard commented “It’s helpful to have a good standard of data, and the better the data the more accurate the initial price quoted by an Insurer is”. Though it’s crucial to note data does not need to be totally accurate at this stage. Schemes do get the opportunity under contract to cleanse data in what is known as a verification window. Typically a year, but sometimes two, this is the period within which data can be cleansed and brought to a final level that trustees are happy with and can sign off on.
Richard went on to add “The more accurate the data and benefit calculations are up front, the speedier the post transaction process is, and if you want to go to buy-out this will help you get there much quicker.”
For schemes seeking an initial engagement with an Insurer, Richard explains that they should have a summary of all benefits members are entitled to as well as a clear summary of scheme rules. Data should also be in reasonable form, which would lead to a quicker quote. Richard shares a top tip to schemes “What we sometimes find is that Administrators are not fully engaged in the process. Make sure you engage at the early point of going to market and ensure benefit specifications aligns with practice and is consistent. This will help uncover any issues early on”.
Spousal data can also bring time-consuming challenges to pension schemes, particularly considering historical benefits for older retirees that may not be up to date. Richard said “It is resource intensive, so planning helps. If automation can assist, that’s great, and external parties can step in to support too. This can help save a lot of time and it’s a common issue.”
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Looking beyond traditional data fields such as home address, email has emerged as a channel for communicating with members. Indeed, many schemes now have online portals that allow members to engage digitally, not only helping boost accessibility online, but as another avenue from which members can update their information themselves. This is an area Richard feels the pensions industry should recognise and embrace.
When it comes to pensions schemes preparing for buy-in or buy-out, do they typically have the in-house capabilities to cope with the added demands on resources?
“Some of the bigger schemes do, however they have so much to process just for their business-as-usual state, that finding resources to dedicate to buy-in buy-out tasks is increasingly difficult” says Rod. “What we are noticing is that more and more schemes are seeking external third-party resources to address certain aspects of the de-risking process.”
Richard agrees. “You typically will never see an over-resourced in-house team! When a buy-in or buy-out project comes along, it’s a big piece of work, particularly post signing.”
So how can data and technology be deployed to cleanse data and run benefit audits at scale?
Mark Crump, Business Development Director at Heywood responded “Scale’s the important thing here. When we look at the projections over the next few years, there’s going to be a lot of work incoming. Automation isn’t just going to be a nice to have, or an alternative route to buy-in or buy-out. It’s absolutely essential.”
Sticking with the theme of market volume, and with a limited number of Insurers in the market, it’s widely accepted that bandwidth is an issue. Mark thinks technology is the answer.
“Right now, we’ve can utilise data analytics so that you can look at cohorts of data rather than going line by line. Insights tools allow us to drill down into the data much more quickly. It’s also worth pointing out that most schemes are still administered using legacy systems or Excel, so there’s value in looking at how new tools can help support a de-risking project.”
Mark said that rules-based calculation engines and the ability to define benefit rules and automate them is a real game changer for all sized schemes.
These are areas that Heywood has been investing in. Modern analytics, audit and calculation tools help schemes get what they need far quicker than legacy systems, a crucial time saver in a crowded market.
When embarking on a buy-in or buy-out journey, engaging with all parties early on is important so everyone involved in the process knows what’s going on as well as expected timescales says Richard. Additionally having a good RFP process in place helps you understand what’s going to happen and where your data accuracy currently sits.
Mark followed up “There are bottlenecks in the market. Schemes have got to be aware that they’re competing with other schemes to get in front of Insurers, so you’ve got to be prepared, so if you’re thinking about this journey, you should be thinking about your data now.”
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