Ensure pension risk transfer decisions drive your scheme forward

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.