Navigating risk reduction for schemes of all shapes and sizes
In this evolving market, Aon is well placed to help trustees and sponsors navigate the settlement market to find the solution that best meets their needs
Martin Bird, Head of Risk Settlement
Choosing the best risk reduction strategy can prove challenging. Our experts help trustees and sponsors understand their motivation for risk reduction. We analyse each pension scheme's unique position and ensure adequate preparation is undertaken, and we have settled risk using our full range of solutions for pension schemes of all shapes and sizes, consistently implementing the best solution at the right time.
If you are new to pension scheme de-risking, our guide will take you through the step-by-step process, explaining what it means to take longevity and demographic risks out of a defined benefit pension schemes. The guide also includes highlights from our exclusive research on the impact that behavioural biases have when addressing pension scheme risk. Being aware of these makes it easier to navigate the best de-risking route for your scheme.
2019 was a record year for the bulk annuity market, with over £43bn of risk being transferred. I am incredibly proud to say that Aon has been at the forefront of this, having been the lead adviser on bulk annuity transactions totalling over £20bn of liabilities in 2019, and enhancing security for over 100,000 scheme members during the year. Some highlights of this include two record breaking deals, firstly The Rolls Royce UK Pension Fund, who completed a partial £4.6bn+ buyout covering 33,00 members, for which Aon were the lead advisor to the trustees. Then this was surpassed by the telent GEC 1972 Plan who successfully transitioned a complex £4.7bn asset portfolio, where Aon were the lead advisor.
Inevitably, it was the large deals that dominated the headlines, but we were also extremely pleased to see a strong market available for smaller schemes. In fact, 40% of Aon led transactions since 2018 have been less than £100m. Thus proving that smaller schemes can still access competitive insurer pricing and attractive terms – if they approach the market in the right way.
In the longevity hedging market, Aon is widely regarded as the leading settlement adviser, having advised on more than half of pension scheme longevity risk transferred to date. Volumes in the longevity swap market in 2019 were dominated by the second largest transaction ever of its type, a £7bn longevity swap involving the HSBC Bank (UK) Pension Scheme and Prudential Insurance Company of America (PICA). We are delighted to have advised HSBC in Bermuda on this transaction.
Preparation is key to avoid disappointment.
Activity during 2019 led to at least six of the eight insurers writing their highest volume of business in their history, and four of the eight insurers writing the largest UK bulk annuity transaction in their history.
Insurers are now being more selective about the schemes that they choose to price, and focus their resources on transaction-ready schemes, particularly at the smaller end of the market, so a clear de-risking objective and thorough preparation will be key to attract the very best pricing available.
Our success is driven by the personal, tailored approach from our dedicated team of consultants and our key bulk annuity services:
- Bulk Annuity Compass – our complete bulk annuity service positions our clients of all scheme sizes to get the best possible value from an annuity, Compass is designed to maximise insurer engagement, and deliver the best possible pricing
- Pathway – use of pre-negotiated contract terms, offered in conjunction with Eversheds Sutherland LLP
If you would like more information please contact the Aon Risk Settlement Team.