Smaller defined benefit (DB) pension schemes could find a “safe harbour” in the buyout market, as growing interest in run-on strategies among larger schemes improves insurer competition and pricing dynamics, ZEDRA has suggested.
The firm noted that, while run-on may not be a realistic endgame option for many smaller schemes, the trend among larger schemes is helping to create more favourable buyout conditions.
ZEDRA client director, Alastair Meeks, explained that as more larger schemes explore alternatives to buyout, fewer large transactions are progressing through the traditional insurer market, prompting insurers to direct more attention and capacity towards smaller schemes.
Meeks noted that smaller schemes have historically struggled to attract sustained insurer interest, with some needing to rely on exclusivity arrangements to progress a transaction.
However, he suggested this is becoming “far less common”, with multiple insurer quotations now more frequent, increasing competition and improving pricing for schemes that may previously have had limited options.
With this in mind, ZEDRA argued the current market could present a valuable opportunity for smaller schemes considering buyout, as stronger insurer competition creates greater choice and, in many cases, more attractive pricing than has been available in recent years.
Meanwhile, Meeks warned that schemes with buyout ambitions should assess their readiness, including ensuring that their data and benefit specifications are in good shape before engaging with insurers.
“While every scheme's circumstances are different, those with buyout ambitions may find this is an opportune time to assess their readiness, ensure their data and benefit specifications are in good shape, and engage with the market," he said.
“For schemes seeking the security of buyout, the current environment may offer a particularly attractive route to safe harbour.”
