Bulk Annuities

The demand for bulk annuity transactions has grown significantly over the past few years and, at the time of writing, is showing no signs of slowing down. Because of this growth, more UK pension scheme trustees and sponsors are looking to ease the burden of paying out pensions to their members by passing the schemes to insurance companies.

In this article we will cover:

It’s important to speak with an independent pensions advisor who can help you make the right decisions. The pension advisors we work with are more than happy to discuss your bulk annuities options.

Find more general information about pension annuities in our guide.

What are bulk annuities?

A bulk annuity is a single premium insurance policy which passes the responsibilities of a trust’s defined benefit pension scheme (DB) to an insurance company. It is referred to as ‘bulk’ as it usually covers more than one beneficiary.

Bulk annuities explained

Once a deal to purchase a company’s bulk annuities has been agreed, the trust will make an upfront payment to the insurer who, in return, will guarantee to pay an income to each beneficiary for the remainder of their lives. This payment will be an exact match to the terms laid out by the trustees and is typically paid monthly to the beneficiaries.

Bulk annuities can be highly profitable for insurers because they invest the single premiums and use the returns gained to meet the liabilities of the policy. The larger the trust, the more profit they are likely to gain.

What’s the difference between bulk annuity buy-ins and buyouts?

Purchasing bulk annuities from trustees is rapidly becoming part of the overall growth strategies for many insurance companies. These de-risking deals, known as buy-ins and buyouts, offer many lucrative options for both parties involved and provide reduced risks and security for members.

It’s always advisable to speak with an insurance expert before deciding which option would work for your circumstances.

Bulk annuity buy-ins

A bulk annuity buy-in is where the total number of annuities are calculated by the insurer and paid as a lump sum to the pension trustees. The insurer then takes on the responsibility of making regular payments into each member’s pension fund to cover the specified amount as outlined in the fund’s commitments.

Bulk annuity buyouts

A bulk annuity buyout policy is where the income is clustered together and paid out directly to each member. The trustees assign all legal responsibilities to the insurer, including administration and payments for each beneficiary.

All members are typically covered by the buyout, though there may be other sub-setting options available. If this is the case, the scheme rules may need to be amended in order for the buyout to go ahead and would typically start out life as a buy-in policy.

Any members not already covered by a buy-in policy would need to be given one. Once all members of the pension scheme are covered, the trustees can go ahead with the buyout, which can be closed once all members have been paid.

What are the bulk annuity market conditions in 2020?

There has been a sharp rise in bulk annuity transactions over the past few years. 2018 in particular saw a large increase in market activity, with scheme buy-in and buyout volumes reaching around £20 billion. The market demand for bulk annuity is experiencing success in early 2020 and, at the time of writing, looks set to stay that way.

The market is experiencing this demand because a large number of UK pension schemes simply cannot cope with the financial burden that pensions impose, mostly due to life expectancy of their members increasing. This means that companies are having to dive deeper into their wallets to meet these demands and may be unable to afford to invest or back stakeholders.

Due to the increase in pension trusts wanting to rid themselves of these pension payouts, insurance companies are now becoming increasingly picky.

Customers often ask us about the best rates for exchanging bulk annuities, however, the rates are constantly fluctuating based on industry demand and will often be tailored based on your circumstances.

For the best rates, we can put you in touch with one of our pensions experts for a free, no obligation chat. You can send us a no-obligation enquiry online.

How to sell your bulk annuity to providers

Thanks to the boom in the market, there are many insurance providers looking to purchase bulk annuities. However, bulk annuity quotes are costly to produce, so insurers will thoroughly evaluate each defined benefit scheme before they make an offer. For example, if the scheme is not clear of deficits or if the scheme itself is on a smaller scale, then they may avoid them.

Nevertheless, you may be able to find an insurance company that would consider taking on-board a smaller scheme, or one with more risks. For the best advice, always get in touch with an industry expert.

How do I purchase them?

If you are an insurer looking to purchase a bulk annuity policy, you need to ensure that you thoroughly research each scheme, as there are many factors which could increase the cost including the number of annuities, the amount of deficits (if any), and how organised the members’ data is.

Generating a quote can also cost you several thousand pounds, so it’s always best to discuss your options with an expert before you delve too far.

Why you should speak to an expert who understands the complex de-risking market

It’s always best to speak with an expert when you are seeking bulk annuity options. The experts we work with can help you explore many different avenues to ensure that you not only get the best deal, but that the members who have paid into the pension scheme are also covered.

Speak to an expert today

Get in touch with us and we’ll connect you to one of the independent pension advisors we work with for expert advice. There’s no fee or obligation on your part. Give us a call on 0808 189 0463 or make an enquiry and we’ll match you with a suitable pension advisor.