Transactions – current trends in the buy-in and buyout market

In terms of the agenda for today, firstly, we'll start with a session from my colleague Greg Robertson, who will look at the current trends in the bulk annuity and longevity swap markets. Secondly, my colleagues Sadie Scaife and Ben Leach will discuss options for dealing with illiquid assets and the current trends in that market as well. And then finally, we'll spend about 10 minutes on alternative endgames, where Will Griffiths will give us the latest in this market. And then I'm pleased to say we'll be joined by Ashu Bhargava from Clara Pensions to give his take on the latest in the Superfund market.

Before we kick off, just one point of housekeeping from me, which is that, on the right-hand side of your screen, you will see a Q&A function. That is where you can let us know if you're having any technical difficulties, and also where you can submit questions throughout the session. And at the end, we will have 10 minutes of Q&A with our presenters. So that's it from me. Firstly, over to Greg to tell us about the latest in the bulk annuity and longevity swap markets.

GREG ROBERTSON: Thanks, Shelly, and morning, everyone. I'm Greg Robertson, a director in WTW's Transactions team. Let me start by commenting on the supply and demand dynamics in the market and picking out five key themes from 2023. The first thing to say is that the market is incredibly busy. There is unprecedented demand from pension schemes, reflecting improvements in funding positions and attractive pricing from the market.

Now, the chart on the left shows the volumes of activity over recent years, with the purple bars representing bulk annuities and the green bars representing longevity swaps. As you'll see, the volume of bulk annuities this year is already close to eclipsing 2022 and 2021. And we expect by the end of the year, the market will beat the record set in 2019.

And that's despite the increase in interest rates over the last 18 months, which have significantly reduced liabilities and transaction sizes, meaning the bars here aren't a like-for-like comparison. It's actually easier to gauge the business of the market by looking at the number of deals completed. And we've shown that underneath the chart.

So prior to last year, the market averaged around 150 transactions a year. But that really stepped up in 2022 to over 200. And we're anticipating something similar by the end of this year.

On the right-hand side, I've picked out the five key themes that I mentioned. So firstly, there is capital available to support the market's growth. And that's both from current participants and potential new entrants.

On the side of current participants, the insurers were anticipating higher volumes in pound terms in their business plans. And they've sourced capital to back those business plans. That coupled with the high interest rate environment means that the insurers, they all have spare capital ready to deploy.

We've also seen a new entrant this year in the shape of AMG. And they're actively quoting on selected transactions, bringing the number of active insurers in the market up to nine. There are others looking at closely entering the market, too, some of which are in advanced stage of their thinking. And it wouldn't surprise me if there's a further two new entrants by the end of next year.

Secondly, whilst there is capital to deploy, there are limits from a people perspective. Each of these transactions, it needs to be priced, often by multiple insurers, it needs to be transacted, and then onboarded, with each of those stages requiring specific expertise, be it actuarial, legal, or administrative. And the insurers are looking to meet that challenge by scaling up their teams and developing more efficient processes. But it's going to take time to bear fruit.

So in that context, all of the insurers have reviewed their strategic priorities over 2023. And by that, I really mean the sorts of deals that they want to quote on. Unsurprisingly, some of the insurers have decided to focus on larger transactions and will only quote on sub $100 million deals on an exceptions basis. Others, they prefer a steady flow of smaller transactions.

And I'm pleased to say that there remains a competitive market for smaller deals. So at WTW, we've closed nine deals of less than $100 million this year. And we've actually got a further 15 out in the market at the moment. So the market is clearly there it just requires a tactical approach to access it.

Fourthly, larger transactions, particularly those of say $1 billion to $2 billion, and now the norm rather than the exception. We also saw the largest transaction ever earlier this year, a $6.5 billion RSA transaction, showing that deals of that scale are possible. And that case paves the way for potentially even bigger trades in the future.

And the volume of larger deals over recent years is also good news for smaller schemes in some ways. For those cases, there's more motivation from the insurers to develop innovative solutions. And that means that, because of the volume of large transactions over recent years, there's now a bank of solutions for the issues that affect all schemes irrespective of their size.

Fifth and finally, I'm pleased to say that pricing remains very competitive. And that's for schemes of all sizes despite the levels of demand. I would draw out particularly the $1 billion to $2 billion range that I mentioned earlier. We've got quite a few of those cases in the market at the moment, and we're finding that to be a particular sweet spot for pricing, given the number of insurers that participate at that size.

So moving on, what are my top tips for success in the current market? Firstly, data-- insurers are keen to avoid manipulating data themselves. And we hear from them that the general quality of data has deteriorated recently. And that's, perhaps, as schemes have rushed to get to market with those strong funding positions that I mentioned.

So you can still stand out from the crowd by spending time up front to get the key data right. And we'd also recommend an independent review of your data and benefit specification to make sure they are consistent and speak the same language. We hear from insurers that that's not always the case.

Secondly, the quotation process-- now, in certain circumstances, it might be optimal to pre-select a shortlist of insurers or to partner with one insurer on an exclusive basis. And that includes for the large transactions. At the smaller end, insurers have come to expect an efficient process-- for example, running a single pricing round. And the thinking there is it minimizes the demands on the pricing teams.

Thirdly, timing-- more so than ever, it is important to be flexible on timing, and particularly when you want to transact and when you want to receive your initial quotation. On a really practical level, we're now seeing that you need to allow for up to 10 weeks for that initial quotation to come through. Fourthly, identify and focus on what really matters. So in the current market, we have stopped issuing long lists of nice-to-haves with our quotation requests.

Understandably, if you do that it gets a fairly generic response from the insurers. And the points that are actually important to you, they get lost. So we recommend engaging the market with a small list of key terms that are really important to you that are specific to your transaction. And we think that gets the maximum traction. It means that those important points are signed off as part of the initial deal governance, and we can come back to the nice-to-haves later on.

Sadie and Ben are going to talk to illiquid assets in our next session. But the key point from my perspective is that insurers now expect trustees to have a credible plan for dealing with them when they approach the market. The insurers there are developing solutions to help trustees with this issue. But those solutions are only part of the story. And most of the time, trustees will need to take action themselves.

Next, there's the topic of residual risks. So for larger transactions, insurers can widen the cover that they're providing to include certain residual risks that remain following buyout and windup, such as data or benefit errors. And for some schemes, that's a valuable extension.

However, it does come at a cost, and it introduces additional complexity to the process, including for the insurer. So we recommend planning for residual risks early in your transaction. And that includes an assessment of whether the additional cover that an insurer can provide will truly add value for money.

Finally, I mentioned that larger deals are now the norm. Now, unsurprisingly, they take up a significant amount of market resource and capacity. And they could impact on lots of transactions. So irrespective of your scheme size, having visibility of those larger deals will be of real value to you. And it will help you optimize the timing of your transaction.

So to conclude, the market is incredibly busy. It's more dynamic than I've ever known it. But that also means it's a really exciting place to work. Shelly, back to you.

SHELLY BEARD: Thank you very much, Greg. I certainly agree that it's an exciting area of pensions to work in at the moment. And thank you for your top tips, which I hope everyone was scribbling down. For our next session, we're going to be doing a deeper dive into one of the areas that Greg highlighted, which is illiquid assets. So Sadie Scaife and Ben Leach will be looking at the options for illiquids as schemes approach settlement.

SADIE SCAIFE: Hi, I'm Sadie Scaife, and I'm one of our transactions leads here at WTW. I'm joined today by Ben Leach, who's one of my colleagues from our investment team. And we're going to discuss the solutions for schemes with illiquid assets.

And I know, for me, this is really topical at the moment. So many schemes are finding that, on paper at least, they can afford to buy out, perhaps well ahead of when they expected. But maximizing the value from their illiquid assets is going to be key to achieving this. So welcome Ben. Do you want to introduce yourself?

BEN LEACH: Thank you, Sadie, great seeing you again. Yes, my name is Ben Leach for those of you listening in, senior director in our investments business, responsible for our private market solutions, working with clients of ours to optimize their private markets exposure.

SADIE SCAIFE: So first of all, we said the session was around illiquid assets, but as we know, that can cover a huge range of different things, Ben. Can you tell us which kind of asset schemes are holding, and I suppose why they might be holding them?

BEN LEACH: Yeah, absolutely, Sadie, great question. As everyone knows, illiquid assets is a broad church. There are many different asset classes within that and different structures that they hold those through. So a lot of our clients have property or real estate, certainly in the UK and DB pension market, a number of investors and allocators allocated a long time ago to property and real estate, a really nice diversifier away from equities and some high quality property held through a number of our clients' portfolios.

We've also got private equity in portfolios, a really nice return generator for them, historically, helping a number of those schemes achieve the funding status that they enjoy today. Private credit, used for a variety of different reasons, income yield generation is similarly, as well, a nice diversifier and return generator too. And of course, not to forget infrastructure, which for other reasons also held, one of the major reasons clients have historically had exposure there is some of the inflation linked properties the infrastructure assets can provide.

The ways in which our clients hold these assets is also not necessarily the same. We often find, certainly with property assets, clients will hold some of those directly. We see clients hold illiquid assets through funds, most commonly across those four verticals that I covered. And sometimes, we have clients with fund to fund exposure, again, a different type of fund but one with an additional layer of cost and complexity as well.

SADIE SCAIFE: That's great, thanks. So we were going to talk about the different approaches we've been advising schemes to take to managing their illiquid assets. Ben, do you want to talk about some of the options you're advising schemes to take in the market?

BEN LEACH: Yeah, absolutely, Sadie. I think one of the key ways in which clients can help transition to the next stage is using the secondary market, which, as we've seen, has really evolved and developed over the past number of years, increasingly sophisticated, intermediated by a large pool of brokers and agents and many different types of buyers participating in that market now, for a variety of different reasons. And it's a market that is really global in nature.

So there are different pockets around the world, different sectors around the world that will have varying interest in different kinds of those assets that I've just talked about, to greater or lesser degrees, depending on what's impacting their portfolios at any one particular point of time-- so secondary market sales, certainly a key part of any client's journey unto the next stage. I think the other thing that we've seen clients do more of certainly in the last couple of years is think about sales back to their sponsor, or potentially even look at transitioning assets to other pension schemes within the same group.

So you've got multinational companies, potentially with pension schemes in different markets. And actually, some of those schemes may not be winding down. They may not be buying out. And they might have a reason to hold some of these assets and look to transfer some of them, which is obviously far more easily facilitated when you've got schemes sitting within the same group. Sadie, what are the other-- what are the options you've been seeing then?

SADIE SCAIFE: Yeah, I'll talk mainly about the developments we're seeing from the insurers. But I think what is relatively standard and what has been widely offered for a while now are deferred premiums. And roughly, as a rule of thumb, I think you can expect it's possible to defer about 10% of your premium for around two years.

The interest rate on that will be relatively high. You might be looking at something around [INAUDIBLE] plus 2 and 1/2% to 3%. So it's not necessarily very cheap. And it's also not the case that the insurers will want to offer that on every transaction they write. But I think that is an option that's out there for a lot of schemes.

Where we're seeing more development and innovation in the insurers recently has been around their ability to take on these illiquid assets. And I think how valuable that is and how attractive that is will come down to really what the asset is and whether the insurer will actually want to hold it in the long term. So if it offers close matching for cash flows, and it's secure, and it's something the insurers want to hold, it might look quite an attractive way to make the transaction happen.

Alternatively, it might just be that the insurer really is offering to facilitate the sale of that asset for you, really, by taking it on. And they will then sell it on, probably, in the secondary market. And although that will probably come with a significant haircut, it can still be attractive if it's going to provide you with certainty and the speed of execution that you're looking for to complete your buyout transaction. But what we are seeing is the insurers will want a lot of information about those assets before they can even commit to taking them on.

In terms of other kind of developments we're seeing, schemes are looking increasingly at being able to run down their illiquid assets over a period. So although many schemes are looking to buy out in the near future, they might actually have a period of time following a transaction where they can get their data in the right shape to actually achieve the buyout. And actually, they may have a period where they can allow those illiquid assets to run off, particularly if they are able to use some of those illiquid assets to pay for future costs, or if some of the-- if the scheme is in a surplus that can be used at the end of the period once all the illiquid asset redemptions are back.

We're also seeing the opportunity to use loans within schemes, so kind of short-term borrowing for liquidity purposes, which we've seen provided by a range of people. So it could be that, to facilitate a transaction, the sponsor might be willing to give a short-term loan if they know the redemptions of the illiquid assets will come in slightly later than they needed. So Ben, having run through the range of options that are out there, how do you recommend schemes try to work out what is the best option for their particular portfolio?

BEN LEACH: Well, I think the first thing to say on that one, Sadie, is being prepared and being prepared early, as you've just talked about there. Some of those deferrals, loans, potential, redemptions on some of the illiquid assets, or even the time taken to go through a secondary transaction, means-- when we speak to our clients, we're asking them to get ahead of this issue. Trying to come at this too late in the process as you're thinking about a buyout or a transaction means you're already behind the curve, so important to work through this issue early as you're approaching that sort of end game.

I think when we're speaking to our clients, we're trying to get them to undergo a transaction liquidity assessment and a portfolio analysis of the deep underlying line by line level so that they can really assess what those options are. You talked about some of the attractiveness of some of those asset classes. Well, you want to know which of those are, and you want to have an independent view over that so that you've armed with more information as you go and approach those insurers.

We've clearly got that capability in house, as you and I know, working on some of our clients together. So we think that process is one that needs to be robust, needs to be up front. Understanding, perhaps, what the secondary market might be able to help you achieve or not achieve, or at least at what price you might be able to expect for certain of your assets, and being able to do that on a no-names basis without, perhaps, potentially leading the witness as you engage with that secondary market, again, another key activity we recommend to our clients as we're working with them through, as I say, this phase that they're going through.

And I think, lastly, is actually just understanding, with your investment managers perhaps, what it is their terms and conditions are. So you might actually not need to utilize the secondary market if there is a robust redemption process that you might be able to access. Perhaps the manager themselves might know other investors that would be looking for greater exposure to your position. And so having relationships with investment managers, having specialists in each of those areas, they're very distinct asset classes, private equity and property and infrastructure and private credit.

The players and the ecosystems obviously overlap in certain instances. But the complexity and the depth of those markets these days means that you really need to understand not just the asset class but what exactly it is you own. And so performing that assessment early on, I think, Sadie, is absolutely key to ultimately optimizing your position for when you get into that buyout conversation with the insurer.

SADIE SCAIFE: I agree, Ben. Thank you very much for your time today. It's been really good to have this chat with you. I think the key takeaway for me is that this is still a rapidly developing area. And actually, the optimal solution is going to be very different from one scheme to the next. So I suppose, for me, that demonstrates how important it is to work with advisors who understand the illiquid asset markets and what's happening there, but also with the experience in the insurance market and knowing how to get the best out of the insurers. So I think that's come across really well in this discussion. Thank you, Ben.

BEN LEACH: Thank you, Sadie. Good to catch up with you.

SHELLY BEARD: Thank you very much, Sadie and Ben, some really useful insights there, and good to hear more about the secondary market. We're now on to our final session, in which Will is going to update us on what's going on in the alternative endgame space. Over to you, Will. OK

WILL GRIFFITHS: Thanks, Shelly, and good morning all. I'm Will Griffiths, a director in the WTW Transactions team. I'll be spending five minutes giving an update on Superfunds. And we'll then have a short Q&A session with Ashu Bhargava, who is the chief origination officer at Clara Pensions, get his views on this market.

So in my update, I'll be focusing on the recent government response, the consultation on Superfunds. And it's worth noting that this consultation was originally issued to the market to comment on back in 2018, so some time ago now. And since then, no transfers to a Superfund have occurred. But one Superfund, being Clara Pensions, has been authorized by TPR under its interim regime.

So turning to the government response, the main point that struck me reading this was just how strong the government has now come out in support of Superfunds, following a period of uncertainty over the last few years. This is shown quite neatly in the forward to the response, in which the pensions minister states the government's commitment to having a permanent regulated regime for this important innovation.

From my perspective, if I had to pick three key takeaways in the response, I'd highlight, firstly, that Superfunds are pension schemes and not insurance companies and should be treated as such. Superfunds are not offering a buyout light option. They are something different. And the regulation and therefore, importantly, the price should reflect that.

So what does this mean in terms of the numbers? Well, the government says that a 2% chance of a Superfund failing and entering the PPF is acceptable. And that, according to the government, implies a cost of at least 10% below buyout for entry into a Superfund.

Secondly, the government accepts that Superfunds will be targeting bigger schemes, at least initially, as there is a need for Superfunds to achieve scale as quickly as possible. But that does raise the question as to how long smaller schemes may have to wait for this solution. Thirdly and finally, the three gateway principles which a scheme must pass to enter a Superfund remain, essentially, being that, one, the scheme can't afford to buyout now, two, the scheme can't afford to buyout in the foreseeable future, and three, a move to a Superfund should increase the likelihood of members getting the full benefits.

So moving on, what does this mean in practice for schemes? Well, using the government's figures from the consultation response, the Superfund option might be of interest to a scheme that is 90% to 95% funded, but with a weak covenant, as it might be obvious here that the capital a Superfund would put in on day 1 is greater than the value of the sponsor covenant that would be given up. And in this scenario, it could be the trustees who are proactively approaching a Superfund without prompting from the sponsor.

Alternatively, we could have a scheme that is 70% to 90% funded on buyout but with a decent covenant behind it. And I think this is more likely to be the case where a sponsor raises the prospect of a Superfund with the trustees, alongside an offer to make a contribution to facilitate. But personally, I think this is where the real challenge lies in making the right decision and, in particular, answering that third gateway principle as to whether a move to a Superfund here increases the likelihood of members getting the full benefits.

Finally, there is also the potential for this to be of significant interest to those schemes that would otherwise fall into the PPF. Here, a Superfund potentially allows members to get a higher level of benefits than would otherwise be the case. So to finish off with, I just wanted to touch on third-party capital solutions, which do have some similarities to Superfunds.

In a nutshell, in a third-party capital solution, an external party provides backing capital to support a pension scheme. But, at least initially, the sponsor covenant remains-- so different to Superfunds in this last respect. There has already been one such deal transacted back in 2020, and there are a number of capital providers interested in this space.

The government consultation response on superfunds recognizes these developments and mentions not wanting to be overly prescriptive in the final regime so as not to stifle innovation here. So it will now be interesting to see if these third-party capital solutions grow hand in hand with Superfunds as a way of helping to manage pension liabilities.

Hopefully, that should give a good overview of the state of play in respect of Superfunds. And we'll now move on to the Q&A session with Ashu, who can give the provider view on this. Thanks.

Hi, Ashu, thank you very much for joining us for this session. I think a lot of sponsors and trustees will be very keen to get your take on this market. So before we dive into the questions, would you like to say a few words just to introduce yourself?

ASHU BHARGAVA: Thank you, Will. And first of all, thank you for inviting me to participate today. My role at Clara is working with trustee sponsors and their advisors to determine whether Clara can improve the likelihood of members getting full benefits and, where they can, working with all parties to transfer to Clara.

WILL GRIFFITHS: OK, thanks, Ashu. So the first question that I had is starting off with the government response to the consultation on Superfunds. What are your key takeaways from this document?

ASHU BHARGAVA: So some of our key takeaways are really around the government reiterating its support and commitment for Superfunds. And within the response, the government noted that, although Superfund-- although scheme funding has improved, the benefits Superfunds can provide are still important.

So one example given in the response relates to members benefits being at risk. And this-- and the responses referred to schemes which are fully funded on TPs. But even in those cases, if the sponsor became insolvent, it is unlikely that members would receive full benefits. Superfunds protect members against this risk.

Another example that was given within the response was that Superfunds have the potential to obtain more funding for the scheme than would be the case if a Superfund transaction wasn't being considered. And as bringing forward the settlement of the pension scheme creates value for the sponsor, the sponsor is able to use some of that value created to facilitate a transfer to Clara.

WILL GRIFFITHS: That's great. So following on from the government response, what sort of interest are you now seeing from pension schemes? And do these fall into any particular categories in terms of the makeup and the profile of these schemes?

ASHU BHARGAVA: So if we think about our pipeline, at the moment, we have greater than 10 schemes. They relate to around 50,000 members. And the total assets are around $4 billion.

And they broadly break down into two themes underlying all of those cases within our pipeline. The first theme relates to sponsor-led discussions. And these are discussions where the sponsor has offered the trustees an ad hoc contribution if they were to transfer to a Superfund. And this contribution, together with the capital that the Superfund would provide, enables the achievement of a greater likelihood of members receiving full benefits.

If I was to describe the nature of these types of schemes, I would say a lot of them are funded at or around TPs. And the strength of the covenant backing these schemes is in the middle two of the four buckets that TPR uses to determine strength of covenant. The second theme then relates to discussions which are initiated by trustees.

And here, the types of schemes are well funded schemes who could transfer to a Superfund at little or no cost. And these schemes tend to have very weak covenants. And they fall in the weakest bracket as determined by the Pensions Regulator.

So we are currently working with a number of trustees, sponsors, and advisors, including yourselves, WTW, as well as TPR, to achieve a transfer to Clara. And we expect to complete our first few transactions before the end of this year. Based on discussions with trustees, sponsors, and advisors, we also agree that, once we have completed our first few transactions, the Superfund market will grow enormously.

WILL GRIFFITHS: That sounds really positive, actually. And I think the figures you mentioned there, the 50,000 members, the $4 billion of assets, that's an incredibly strong pipeline. But what does that mean in terms of you engaging with new schemes who are looking at Superfund as a potential solution and committing to work on the transactions?

ASHU BHARGAVA: Ultimately, when schemes transfer to Clara, when members transfer to Clara, the ultimate destination for those members is the insured market and insured buyout. And so the types of-- the requirements the insurers have on things such as member data, good member data, a robust benefit specification, resolving what to do with any illiquid assets, all of those things apply to schemes looking to transfer to Clara. However, because that ultimate-- that transfer to an insured buyout occurs or is expected to occur within five to 10 years of transferring to Clara, it is-- we have much more flexibility than the insurer. And so a scheme can transfer to Clara in order to take advantage of any current favorable market conditions. And the requirements that I described earlier, which are similar to what's required by insurers, that can be completed some time after the transfer has taken place.

In terms of how we interact with new schemes, one thing we're very keen to do is keep the process as efficient as possible. And so what we do is, when we have initial discussions with trustees, sponsors, and their advisors, before they have to undertake any detailed work, we will provide them with an initial feasibility price. And that's based on whatever information is readily available so that they can, at an early stage, get an idea of whether Clara is affordable or not.

In a similar vein, before a scheme can transfer to Clara, they need to demonstrate that the likelihood of members receiving full benefits will improve. And so once again, at an initial stage, at the same time, we provide feasibility pricing, we can also give an indication of whether we believe member outcomes will improve within Clara.

WILL GRIFFITHS: That's great. Thanks, Ashu. And I think that point around being able to give indicative pricing, it's really useful. It's really interesting. It's not the similar approach to, I think, what some insurers are taking now in terms of providing indicative pricing and helping to support the trustees in that regard. Finally, I just wondered, is there a key message, one key point that you would leave trustees with, say either those that are thinking about this off their own bat or have been approached by the sponsor to look into this? Is there one key takeaway that you would leave with them?

ASHU BHARGAVA: So if there was one key takeaway, I think it would be around understanding whether there is scope to improve the likelihood of members receiving full benefits following a transfer to a Superfund.

WILL GRIFFITHS: That's great. Thanks a lot, Ashu. I really appreciate the time you've taken today to answer those questions.

ASHU BHARGAVA: Thanks, Will. I always love to talk about Superfunds, and thank you for the opportunity again.

SHELLY BEARD: Thank you very much, Will and Ashu. Certainly an area of the market to keep a close eye on, and I'll be looking out for those deal announcements that as you predicted before the end of the year. So that's the end of our formal presentation for this morning. And in a few minutes, we'll move to the Q&A with our presenters that I mentioned.

But before I do, we are hoping to get your input on a few of the topics that we have covered today via four short poll questions. So let's move to question 1, and check that you're all still paying attention. So this question is related to Will and Ashu's session, which is, would you consider a Superfund transaction for your scheme?

So we've got three reasons why you might say no based on the scheme being well funded, or not liking the concept, or don't want to be a first mover, and then yes, or undecided at this stage. So please, could you select your preferred answer? And as you do that, I hope it goes without saying that these answers are all on an anonymous basis. So if you click option D, you won't be getting a quick phone call from Ashu straight after this presentation.

I'll just give you a few more seconds to click your preferred answer. OK, let's move to the results please. OK, well, that's really interesting and good to hear that so many schemes are in a strong funding position or with a strong sponsor covenant, but also that some are still monitoring to see how this market develops. So thank you for your input on that one.

Our second question is, have your endgame timescales changed in the past year? So that's reflecting the point that Greg made about scheme funding levels improving. And there's just three potential responses here-- so the timescale has been brought forward, the timescale is the same, or the timescale has been pushed back. And I guess, to a large extent, your response here is going to be driven by the level of hedging you had before the LGI crisis and the subsequent rise in rates that we have seen over the last 12 months.

We'll just give everyone a couple more seconds. OK, let's move on to the responses, please. OK, excellent. Well, good to see that so many of you have seen your funding-- your timescales brought forwards or stayed the same, and it's only the minority that have had bad news over the past 12 months. And that does go back to the point that Greg was making earlier about the busyness of the market, with everyone bringing forwards their endgames.

So then our penultimate question is, what, if any, do you perceive as the biggest barrier to achieving the scheme's objectives? So there's five possible answers here. Firstly, it's around disposal of illiquid assets, so back to Sadie and Ben's presentation. Secondly, clarity on use of scheme surplus.

Thirdly, an uncertain regulatory environment-- and this would point towards the recent Mansion House announcements. Fourthly, capacity in the bulk annuity market, or fifthly, getting the scheme buyout ready, so all of that valuable preparatory work that Greg mentioned around data and benefits. So there's a wide range of options there. I'll just give you a few more moments to fill in your preferred one.

OK, let's move to the results, please. OK, well, clearly we chose the right topics today by focusing on illiquid assets and preparing to go to market. So that's really valuable feedback. Thank you, everyone. And then, finally, we have a question on illiquid assets.

So the question is, are you currently investigating any of the following in relation to your schemes illiquid asset holding? So the secondary market sale, transfer to an insurer, use of a deferred premium with an insurer, or some kind of workaround using your sponsor, be that a sponsor loan or a transfer within a sponsors group. I'll just give everyone a few more seconds.

OK, let's move to the results, please. That's a huge number that are looking at the secondary market and reinforces why it's quite so busy at the moment, and also the importance of taking advice from someone that knows that secondary market well, given how competitive it can be. So thank you very much for your input. We will be sharing the summary results from these polls when we send you the followup from the webinar.

So now, let's move on to the Q&A session. And I'm pleased to welcome back Will and Greg, who are our earlier presenters. Now, you've all been submitting questions throughout the session, so thank you very much for these. And we should have time to cover most of them. But firstly, Greg, I think I'll ask you a question, which is, going back to your top tips, what is the most common mistake that schemes make when they're approaching the market, would you say?

GREG ROBERTSON: That's a good question. I suppose a cheeky answer, Shelly, might be, not appointing WTW to lead that transaction. But joking aside, I think, in the current market, you need to-- you can't afford to take a disproportionate approach with your quotation request. So the market is so competitive, insurers can't quote on everything.

You need to make your scheme as compelling as possible. And one of the simplest ways to do that is to keep your requests proportionate. So to give one example, I mentioned residual risk insurance earlier. Insurers tell us that that can double the price and resource that's required for a particular transaction.

And if you're asking each insurer to provide a residual risk quotation up front, it wouldn't surprise me if at least one insurer uses that as a reason not to participate altogether. And there might be benefits of getting those residual risk quotations up front. But there's clearly a judgment to be made about whether that's the right strategy and overall level. So I think the key message here is to keep things proportionate. It's what's needed in the current market.

SHELLY BEARD: Great, thank you very much, Greg. Now one for you, Will-- so you mentioned that one of the gateway principles is that a scheme shouldn't be able-- shouldn't enter a Superfund if it can afford to buyout in the foreseeable future. What does this mean, and what kind of periods are we talking about when we say foreseeable future?

WILL GRIFFITHS: OK, thanks, Shelly. So first off, it will involve the scheme actuary estimating the position now and how that might evolve in the future, so understanding that the buyer pricing is vital to that, as well as considering the likelihood of receiving any contributions committed by the sponsor. But I think, in terms of the time frame, foreseeable for most schemes might typically be taken to mean three to five years.

Beyond that, predicting the covenant is quite difficult. But it will vary on a case by case basis. So I think that needs to be taken into account. I think it's also worth noting, just in the updated TPR guidance, there is comment around access to the bulk annuity market when thinking about this. So it's not just, is it going to be affordable, can you afford to do it in the foreseeable future, but can you get access to the market.

So this is particularly relevant for maybe a very small transaction, where you might be-- that they would struggle to get a quote. Having said that, though, I think all the very small schemes that we've had, we've always been able to get at least one insurer to be able to quote on that. So from our perspective, I don't think we see that as a problem.

SHELLY BEARD: Great. All right, thank you very much for that one, Will. The next one I think is coming back at you Greg. So how would you recommend schemes time their approach in terms of when in the calendar year or when in general to go to market to get the best possible pricing?

GREG ROBERTSON: Yeah, it's an interesting one. So I think, in reality, the market is just too busy these days to try and be too clever with timing. The insurers previously might have held pricing slots for particular schemes. But we're not seeing that so much anymore. It's more of a first come, first serve basis.

So the key will to be-- the key is to be in the market as soon as you can once you've done the necessary preparatory work, accepting that for smaller transactions you're going to need to be flexible on the timing, as I mentioned earlier. Now, the market is very dynamic. Who knows what will play out in 2024. So the position could change. There's potentially still pricing opportunities for schemes that are well informed. But for the time being, it's a case of being at the front of the queue as soon as you can.

SHELLY BEARD: OK, thanks, Greg. And I'd agree with that. I think it's about doing good preparation to go to market, and then, as you say, going as soon as you're confident that you've done that preparation of data and benefits such that the insurers are going to be keen to engage on your case. So we've had quite a few questions about the price outlook for the next few years in the buy-in and buyout market. So maybe I'll take that question.

So as I look forward, I think there are a number of potential positives in terms of where pricing might go for both deferreds and pensioners. Those positives are in terms of the efficiencies that Greg mentioned that the insurers are building within their pricing systems, the fact that we do have new entrants coming to the market, and that will add extra competitive tension. We also have the changes to the way in which insurers are required to hold capital, so the move from Solvency II, the European regulation, to Solvency UK.

And that's not going to have a huge impact on pricing. But at the margins, we expect it to be slightly positive. And at the moment, one of the things that is helping the buy-in and buyout pricing look particularly competitive is that the longevity reinsurance market is particularly competitive. And that's the market that the insurers all lay off their longevity risk too.

So that's feeding through into competitive buy-in and buyout pricing as well. So those are all positives and indicating that pricing might look more-- might look better over the coming years. I'd say the big negative, the big headwind, is just the volume of schemes coming to market. So whilst we do have lots of new entrants, are they going to be able to keep up with the capacity that pension schemes are demanding? And that's just a big unknown at the moment.

So in summary, I think I might need to duck the question, actually, because I don't think it's clear how all of those factors will come through. And certainly, also, market conditions in the form of the level of credit spreads are also going to be absolutely key in terms of driving insurer pricing. So I think the message, as with the previous question, actually, is go to market when you're ready rather than trying to second guess when you think pricing might be better or worse.

OK, on to our next question-- this one is for Will. So you mentioned that trustees need to assess if a transfer to a Superfund will increase the likelihood of members receiving their full benefit. So how can they go about doing that, and what kind of assumptions do they need to make when they're doing that analysis?

WILL GRIFFITHS: Yeah, thanks, Shelly. And I think it is a very tricky question. I think, of the three gateway principles, that's the hardest one to come up with an answer to. I think it comes down to advice, in particular covenant advice. So how strong is the sponsor? What's the likelihood of the sponsor making the contributions that it needs to, and then modeling on the other side, so the likelihood of the Superfund paying the members benefits in full.

And as Ashu mentioned in the earlier session, Clara can support on that providing information to help with that, and then kind of modeling those together. I think the challenge here, though, is that, in some ways, it's quite a subjective question, in terms of how that is modeled, what assumptions are used within that. And I think what that potentially means from a trustee perspective is that there is the risk of being criticized with the benefit of hindsight, even in the scenario where a sponsor offers a top up to the scheme to get them into a Superfund.

If that is then declined by the trustees for the right reasons, if the sponsor then subsequently fails and the scheme falls into the PPF, members might then ask the question as, well, why didn't you take that offer from the sponsor at the time that it was made? Obviously, if the trustee has done that for the right reasons, it's done what it's believed to be the right thing at the time, then that's fair enough. But you can see how it's a slightly more challenging situation than say thinking about a buyout where that's the gold standard and you can either afford it or you can't. So yeah, I think that third gateway principle is a very tricky one to answer.

SHELLY BEARD: Great. OK, thanks very much for that, Will. I think we have time for just one more question, which is one that we've received on the subject of new entrants into the bulk annuity market. I know this is something that always piques our attendees' interests, so we often get questions on this.

So the question is, what more can we say? And if I'm honest, we can't say too much at this stage. I think the big positive thing that I would say is the ones that we're aware are considering entering the market are not just going to focus necessarily at the larger end of the market. So they recognize there are opportunities for smaller schemes as well.

And actually, perhaps that part of the market is slightly less competitive than the larger end of the market, so there may be more opportunity for them. So I think, hopefully, good news for all sizes of schemes as they consider new entrants. So look out for those announcements.

So that's all we have time for today because I'm keen to give you a break for coffee before your next meeting. So sorry if we didn't have time to get around to answering your question. We'll try to get in touch and follow up with an answer.

And all that remains is for me to say thank you very much to our presenters. And thank you very much to our audience, for your time this morning. We hope you found the topics interesting and useful.

Now, when I finish speaking, there will be a short survey, which we'd love you to fill in if that would be possible, just to give us a little bit of feedback on the session and how you found it. So please just take a couple of minutes to do that. Thank you very much for your time this morning, and I wish you all an excellent Tuesday. Goodbye.

[AUDIO LOGO]