United Kingdom

Risk Settlement

Navigating risk reduction for schemes of all shapes and sizes

Martin Bird
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.

COVID-19 and lockdown threw 2020 into turmoil. In the face of this adversity, the risk settlement market was able to adapt and function efficiently to the extent that transactions in 2020 could break the £50bn mark. Even with the unprecedented challenges brought by the pandemic, a substantial £12.7bn of bulk annuity business across 77 transactions were written in the first six months of 2020. Allowing for already announced and predicted transactions over the second half of the year, 2020 is on target to be the second busiest year for the bulk annuity market with around £30bn of transactions. The volatile conditions experienced over the year provided more opportunities for pensioner deals, of which, one of the greatest impacts was made by the Co-operative Pension Scheme (PACE), which placed £2.8bn of pensioner buy-ins, across four transactions with Aviva and PIC, all of which were advised by Aon.

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. Over the first half of 2020, three longevity swaps for UK pension schemes were publicly announced, including the £10bn swap for Lloyd’s Banking Group – one of the largest publicised swaps to date. Several high-profile longevity swaps are being progressed and may complete over the rest of 2020 and early 2021 as larger schemes seek to benefit from attractive pricing available in the reinsurance market.

As we head into 2021, we anticipate strong appetite from insurers and reinsurers to grow the market further and opportunities will exist for schemes of all sizes, with flexibility and nimbleness being key themes for 2021. Some of the inevitable market uncertainty, driven by Brexit negotiations, the RPI/CPI consultation and the possibility of future lockdowns, will mean that schemes will need to take a robust approach to get transactions over the line.

More than ever those schemes who can correctly navigate the current busy marketplace and are ready to capture risk settlement opportunities that arise will be best placed to achieve their objectives. If you are thinking about whether risk settlement might be suitable for your own scheme, then now is certainly a good time to start planning.

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

Over 2020...

Aon Advised:

If you would like more information please contact the Aon Risk Settlement Team.

Recognised Success across the pensions industry
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