Pension, insurance and investment consultancy firm, Lane Clark & Peacock LLP (LCP) believes that increasingly, it will become standard for smaller pension schemes looking to de-risk to utilise a streamlined service.
To date, LCP has completed 40 transactions worth more than £1 billion for smaller pension schemes using its streamlined buy-in and buy-out service.
The firm was reportedly the first to introduce a streamlined service for using pre-negotiated insurance contracts and partnering with a legal firm, and in 2011, Swedish Match completed the first such streamlined transaction in the UK.
The trend of smaller schemes eager to de-risk leveraging a streamlined approach is one that LCP expects to continue and even accelerate in the future, driven in part by the fact that insurers are turning their focus to larger deals at the expense of smaller schemes.
LCP notes that this is supported by the realisation that the number of buy-ins and buy-outs under £100 million have declined by roughly 30% over the last five years, while buy-in and buy-out volumes are expected to reach a total of £35 billion for 2019 after a record-breaking first half of the year.
This, says LCP, is one of the reasons there has been a notable increase in demand from smaller pension schemes for its streamlined services, and, going forward, the consultancy expects that it will increasingly become the norm for any transaction under £100 million to operate through a streamlined service.
Furthermore, notes LCP, some insurers are asking for the streamlined service for transactions as large as £200 million.
David Stewart, Partner in LCP’s de-risking practice, commented: “The logic for buy-ins and buy-outs is arguably strongest for smaller schemes as they do not benefit from the scale of larger schemes. It is therefore disappointing that the last five years has seen the number of transactions under £100m fall by 30%, although this is perhaps no surprise given how busy the buy-out market is.
“We are pleased to have been able to buck this trend having seen a huge rise in demand from smaller schemes to transact through our streamlined service. The number of transactions through the service has increased 50% in the past 5 years. We are delighted to have now completed over £1bn through LCP’s streamlined service providing these schemes with access to pricing just as attractive as that being achieved by larger schemes.
“Streamlined buy-in/out services are rapidly becoming the norm for transactions under £100m. I would encourage all small schemes to consider a streamlined buy-in/out service as it provides access to the favourable pricing and terms that is proving so attractive to larger schemes.”
