The pension de-risking market has evolved: What comes next?

From specialist solution to endgame option

The UK pension de-risking landscape has undergone a remarkable transformation over the past two decades.

Bulk annuities, once used primarily by schemes facing insolvency or winding up, have now become a mainstream endgame strategy for defined benefit pension schemes.

Annual transaction volumes have increased from the single-digit billions into the tens of billions, driven by improving funding levels, growing insurer capacity and an increased focus on pension risk management.

The 2022 mini budget accelerated this trend further, improving funding positions for many schemes and bringing endgame objectives within reach sooner than expected.

A market defined by greater choice

Against this backdrop, trustees and sponsors are today approaching endgame planning from a position of greater choice.

Bulk annuities are no longer the only option on the table. The emergence of superfunds, the growing debate around run-on strategies and the increasing focus on surplus extraction have broadened the discussion around how best to balance member security, sponsor objectives and long-term value.

This growing choice is also driving greater segmentation across the market. Different schemes have different objectives, and insurers are responding with more flexible solutions and tailored approaches designed to meet a wider range of needs.

Segmentation is reshaping insurer propositions

Across the market, investment in people, technology and propositions is helping insurers expand their capabilities.

At Canada Life, for example, strategic hires across business development, operations and strategy have supported the deployment of solutions such as deferred premium structures and residual risk cover.

Throughout all this change, competition remains strong, and in relative terms, BPA pricing is at its most attractive level ever.

As a result, the question increasingly facing trustees is not whether buyout is achievable, but whether the alternative options truly offer a strong enough reason to delay locking in at unprecedented pricing levels.

The next differentiator: member experience

As more schemes move closer to securing benefits, attention is beginning to shift beyond transaction execution and pricing alone.

The BPA market has spent much of the last two decades evolving how pension risk is transferred and developing the scale to meet demand. While those factors remain important, the next phase of the market’s evolution might instead be defined by the experience of members themselves.

As buyout becomes increasingly affordable for more schemes, transaction capability alone is unlikely to be enough to differentiate providers. The focus is beginning to shift from simply securing benefits, to supporting the people receiving them.

Supporting members through the moments that matter

Today's pensioners are living longer, retiring differently and engaging with financial services in ways previous generations did not.

Increasingly, members want flexibility in how they interact with providers, whether through digital portals, customer hubs or more traditional channels like telephone.

They also expect support that reflects their individual circumstances, catering to their ever-changing needs throughout retirement. Beneficiaries and families likewise expect empathy and practical support at important moments, such as bereavement or changes in financial circumstances.

Trustees are therefore becoming increasingly interested not only in how a transaction is executed, but in the experience members and their families will receive afterwards.

Building a member-first endgame proposition

For insurers, this represents an opportunity to think differently about what success looks like. At Canada Life, we believe the future of the endgame market should be built on a member-first approach.

This thinking has informed the development of initiatives such as Your Life Hub – our digital service designed to help members access and manage information throughout retirement – and WeCare, which provides access to a range of health, wellbeing and support services.

Together, these initiatives reflect our belief that member support should extend beyond the transaction itself and encompass broader health, wellbeing, financial and legal needs throughout retirement.

Buyout is not the end of the member journey

While buyout is often described as the endgame for pension schemes, it should not be mistaken for the end of the journey. In many ways, it’s only the start of a long-term relationship between insurer and member that may span many decades.

As the market enters its next phase of evolution, success should increasingly be measured not only by the liabilities transferred, but by the outcomes delivered for the people behind them.

As an industry that has spent years discussing funding levels, insurer capacity and transaction readiness, perhaps the most important question for the decade ahead is not how pension risk is transferred, but how well members are supported once it is.

Explore our member stories to see how Canada Life supports members’ unique needs, challenges and ambitions.

By Neal Davda
Head of client solutions, BPA