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.

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.

In 2020 and 2021, Mercer Risk Transfer advised on...

the largest bulk annuity transaction in 2021


of bulk annuity transactions over 70 deals


of all bulk annuity transactions

The Mercer Streamlined Quotation Service

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 Streamlined Quotation Service — helping smaller schemes access bulk annuity pricing

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.
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Graph shows annual bulk annuity and longevity swap volumes since 2006. The last 3-4 years have seen a step change in bulk annuity volumes, with the number of jumbo deals (over £1bn) influencing volumes in individual years. Demand for both bulk annuity and longevity swap solutions has remained strong even throughout the COVID-19 pandemic.
  • 2021 saw record volumes of bulk annuity deals below  £1bn in size, 10% higher than any previous year.
  • Overall bulk annuity deal volumes were down on 2019 and 2020 due to fewer 'jumbo' deals of £1bn completing, but significant numbers of smaller bulk annuities were written (almost 65% of all 2021 deals were £100m or under).
  • The second half of 2021 saw a surge in bulk annuity transactions, with almost £20bn written in six months, including the Mercer-led £2.2bn metal box buy out, after a relatively quiet start to thee year dominated by small to mid-sized deals.
  • Around £15bn of longevity swaps transacted (across 4 deals) over 2021; the third highest year on record.
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