De-risking report 2025
With the growth of the bulk annuity industry over recent years, insurer processes and administration standards are evolving both to meet the increased volume of business written and due to focus from trustees and advisers to ensure the best possible standards for members.
When it comes to administration standards the trend over the last few years for full scheme buyouts means member experience is front and centre of mind, closely followed by process management to get to buyout effectively.
As an industry, pension administration services are facing challenges, with providers having to balance maintaining business as usual activities against substantial amounts of project work, such as guaranteed minimum pension (GMP) equalisation, pensions dashboards and data audit/rectification work. The bulk annuity providers also have to deal with these challenges, and at a time when the buyout market has increased five-fold (from about £10bn a year over 2019-2022 to around £40bn over 2023 and 2024[1]). Our research with insurers shows a consistent theme – in our view insurers are rising to the challenge by appropriate resource planning, automation of calculation processes, and streamlining services where possible. And, whilst there’s the odd inevitable hiccup along the way, we’ve seen this rapid expansion before in the industry when the market stepped up to meet the increase in quotation activity over late 2022 and 2023.
Insurers have considerable buying power when it comes to administration services, setting up ring fenced teams with high levels of governance and controls, and with high standards. Overall, we are comfortable that all of the established insurers are able to provide the administration services required under a bulk annuity. But there are differences between insurers that can play a material role in deciding between proposals and really understanding the detail of an insurer’s approach is incredibly important, as shown in figure 1.
Comparing the granular detail of an insurer's approach can also be really helpful in terms of reassuring trustees that they are making the right choice by going down the buyout path, as the insurer SLAs and approach can be compared to the existing administrator – typically showing that members will receive a better service from the insurer.
While client testimonials from previous projects and advisers' experience can provide valuable insights, they have their limitations. It's the thorough, detailed research that compares insurer offerings that truly empowers our clients to make an informed decision. In some cases, it is the comparison of administrative capabilities that becomes the deciding factor in selecting one insurer over another.
| Typical industry practice | Examples of differentiators | |
|---|---|---|
| Member retirement and transfer quotations |
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| Online functionality | Most (but not all) insurers have some online functionality for members, which typically includes access to payslips for pensioners, useful documents and FAQ | Insurers have been developing their online tools with over half now providing policyholders with retirement quotes or transfer values online |
| Call handling | Average response time is typically less than 30 seconds | Average response time varies from eight seconds to over a minute |
| People and team | Training, development opportunities and reward utilised to attract and retain experienced staff |
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With new entrants like Royal London and Utmost making their mark in the market recently, and Blumont (owned by Brookfield) set to follow in early 2025, clients are facing an exciting yet complex decision. They must weigh-up the value and potential pricing advantages offered by these newcomers as they seek to establish themselves, against the reliability of transacting with more established, tried-and-tested insurers. In this dynamic environment, detailed research comparing administrative capabilities becomes essential. However, we’d also expect trustees to go the extra mile with due diligence, which may include additional insurer interviews or even on-site visits to the administrator, particularly when considering a new market player.
It’s been well documented that there’s been a rapid increase in the number of schemes transacting over the last couple of years with the expectation of moving to buyout over the next year or two, and, quite rightly given the complexity of these projects, there’s focus across the industry on the insurers’ ability to onboard schemes and carry out the back-office functions required to complete data cleanse, premium true-up, payroll transfer and buyout.
It's always been important for schemes to get comfortable with an insurer’s transition processes following buy-in to ensure that the administrator can meet the requirements of the contract and that the move to the insurer’s member option factors (if relevant) doesn’t affect member experience. However, with healthy scheme funding levels meaning price doesn’t need to be the deciding factor, and with increasing recognition of the pressure on administrators and the cost of running on for even an additional six months (not to mention the possibility of avoiding having to set up Pension Dashboard if buyout can be achieved quickly), trustees are increasingly drilling down into the differences in processes and timelines for moving to wind-up when selecting their insurer.
Insurers across the industry have been developing their resourcing and processes for meeting this demand – by expanding resource and restructuring teams, streamlining processes and automating data checks and member calculations.
At this time, on-the-ground experience remains mixed and, where the timescale to buyout is important to a Trustee or Company, it’s worth making this clear to insurers and spending the time understanding the differences between insurer approaches as part of the insurer selection process. And with significant wider pressures on the administration industry, this due diligence should include understanding how the insurer can support and adapt their timescales to work with the administrator provider.
