The UK Defined Benefit schemes have had a turbulent time in recent years as low bond yields and interest rates have cut into expected long term returns. In a bid to improve information for sponsoring employers and trustees seeking to complete a buy-in or buyout transaction to de-risk their investment among others, Mercer has launched the Mercer Pension Risk Exchange.
In 2000, private sector UK Defined Benefit (DB) schemes held a combined deficit of around £250 billion. Over the past 15 years companies have injected £500 billion into pensions, yet despite the staggering inflow of funds, the deficit has trebled in the time span. As it stands, the total DB deficit amounts to £900 billion, while total liabilities are now over £2 trillion – far in excess of the UK’s GDP of £1.8 trillion. Mercer has been one of the most active players in the UK’s bulk annuity market in recent years, leading 175 transactions with aggregate premiums of over £16 billion. The firm for instance was involved in seven of the ten of the UK’s largest buyouts, which includes all four transactions above £1 billion.
In a bid to improve the information available to sponsoring employers and trustees seeking to complete a buy-in or buyout transaction, the actuarial and HR consulting firm has developed the ‘Exchange’. The platform, dubbed “the first of its kind in the UK” by Mercer, provides an online marketplace which enables plan sponsors to continuously monitor pricing and contract terms available in the group annuity market. The Exchange also provides sponsors with exposure to a wider array of insurers that could potentially act as transactional counterparts for a buyout. The marketplace sources pricing and terms produced directly by insurers on a monthly basis, based on a scheme’s actual benefit structure and individual member data.
Alan Baker, Partner and Head of Mercer’s UK DB Risk team, explains: “Many companies have the appetite to transfer pension risk off their balance sheet but they face barriers: lack of clear information about the true cost of a buy-in or buyout, limited transparency, the fluctuation of market rates and scheme economics to name but a few.”
Phill Beach, Director of UK Pension Risk Transfer for Core Business at Legal & General, remarks: “The pension de-risking market is entering an exciting period with a lot of innovation. I believe this new technology platform will lead the way in helping clients understand market pricing and most importantly the point at which transacting works best for the scheme. Timing can often be the most important factor in realising best value.”
Costas Yiasoumi, Director of Defined Benefit Solutions for Partnership (and a former Mercer consultant), adds: “For the first time the Exchange brings a market place approach to bulk annuity sales and purchases. It matches pension scheme demand and insurer capacity in a way not done before. This will support purchase decisions by trustees, capacity allocation by insurers and in the end real transactions, all of which can only be beneficial.”
The consultancy launched the platform in the US in June 2015 and in the coming months plans to also launch the service in Canada.