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News The UK Defined Benefit (DB) pension buyout market has grown significantly in recent years, driven by improved funding positions and sponsors’ desire to fully insure their pension obligations.
The Pensions Schemes Bill proposals on return of surplus may change the market dynamics but the demand for buyout is unlikely to diminish.
While large schemes have benefited from increasing activity and streamlined processes, many small DB schemes continue to face significant hurdles when attempting to secure buyouts. At the heart of these blockages often lie inefficient processes and outdated technology that slow down transactions, increase costs, and limit market accessibility.
Why Small Schemes Struggle in the Buyout Market
Small DB schemes have a unique set of challenges that make buyout transactions more complex and costly than for their larger counterparts. Some of the key factors include:
– Higher Relative Costs: Fixed costs associated with buyouts – legal fees, actuarial valuations, data cleansing, and project management – represent a larger proportion of total scheme liabilities for smaller schemes.
– Data Quality and Complexity: Smaller schemes often lack the robust data infrastructure found in larger organisations. Inaccurate or incomplete member records can delay insurer underwriting or inflate premiums.
– Limited Specialist Resources: Smaller schemes often do not have access to in-house pensions teams or advisors with buyout expertise, making the process more daunting.
While these challenges have long been recognised, they are exacerbated by poor process management and outdated technology solutions.
Insurer technology issues
Given the rapid growth in the market, systems that could deliver 5 years ago are now struggling to cope with increased business volumes. That’s both with regard to initial pricing and Administration and the journey from Buy In to Buy Out.
We have heard first hand from some Insurers that their ability to meet demand and grow their business is severely constrained by their technology.
It’s not just speed and efficiency in these areas but also end customer outcome. Increasingly sponsors are looking at member experience post buy out as a significant factor. Some administration platforms can’t deliver the kind of modern digital experience that members expect.
Towards a small scheme solution
Addressing these blockages requires embracing better processes and looking afresh at the technology used by providers.
At Mantle, we have recently deployed our integrated actuarial and administration with Utmost, one of the new entrants to the bulk purchase annuities market.
Mantle’s pension actuarial valuation software module enables rapid and accurate pricing, with benefit calculations “reused” when the scheme moves to buy in and buy out. The administration platform delivers 100% calculation automation enabling efficiency and great customer service also allowing members to self-serve via a phone app.
By modernising process and technology, the market can unlock significant value—not only for small schemes and sponsors but also for insurers by reducing underwriting risk and onboarding costs.
It’s not just the transition costs but the impact on staff and resourcing the transition internally. One scheme we spoke to found, the move to their current platform very hard as a lot of the sign off on calculation testing fell on the admin team, who were flat out running the scheme on a day-to-day basis. They vowed never to move again! However, modern platforms have streamlined these processes, significantly reducing the burden on internal teams.
Conclusion
The UK DB buyout market has tremendous potential to serve small pension schemes more effectively, but current blockages rooted in poor process and outdated technology are holding back progress. Innovation and collaboration across trustees, sponsors, insurers, and technology providers are crucial to making buyouts a viable, attractive option for smaller schemes. By breaking down these barriers, the market can advance towards greater security and peace of mind for small scheme members in a seamless and cost-efficient way.
How Mantle’s Pension Management Software can help
If you’d like further information on how Mantle’s pension software can help transform your bulk annuities processes, contact us to schedule your free demo at enquiries@mantleservices.com or download our product collateral here.
